A Little Bit Richer

This series is brought to you by L&G, helping you build a future that's A Little Bit Richer.

Iona Bain: Hello and welcome to A Little Bit Richer with me, Iona Bain, brought to you by Legal & General. Now, starting and raising a family is one of the most life- changing experiences we go through. And parenthood doesn't just disrupt your sleep schedule, it completely reshapes your finances too. With changes to your income and little people to take care of, how do you also take care of your finances during this time? Today's episode is for those who are starting a family or might be thinking about it, and we'll be exploring your parental leave rights, pay and pensions, as well as looking at budgeting, childcare support, and ways to thrive whilst juggling it all. Joining me to break everything down is Katie Guild, mum and co- founder of Nugget Savings, a brilliant online financial community, offering membership, masterclasses, and the tools to help parents forecast and plan whilst navigating their money and their rights. Hi there, Katie.

Katie Guild: Hi.

Iona Bain: Thank you so much for joining us.

Katie Guild: Thank you so much for having me.

Iona Bain: Let's start with a quick explanation for anyone who's thinking about starting a family, who's already expecting a baby, who maybe has already become a parent. What do they need to know to help them navigate this brave new world? Do you think you can do that in 30 seconds?

Katie Guild: Yeah, I'll give it a go.

Iona Bain: Okay. Three, two, one, go.

Katie Guild: So with every big life event like getting married or buying a house or starting a business, there's always a knowledge gap and that knowledge gap exists when you're having a baby as well. So if you don't know everything about the finances, don't worry, that's perfectly normal. You've got time to research and learn about employment law, maternity pay, paternity pay, childcare, all the benefits available to you. And there's loads of support available from fantastic companies and charities like Working Families and ACAS, as well as Nugget Savings.

Iona Bain: Mwah. No notes. That was brilliantly done. What a great start. It would be really good, first of all, to tackle maternity and paternity rights. And paternity rights matter here as well, because dads can sometimes be overlooked in this conversation. What are employees legally entitled to as a basic minimum? And also in your view, what does good look like in terms of employee parental rights?

Katie Guild: Yeah, this is a really good place to start because I think there's a common misconception that because Britain is the sixth- richest nation in the world that we have really substantial maternity pay. But in reality, we have some of the lowest rates of pay in the OECD and we have some of the worst provisions for paternity leave and pay. So it's really important to know the actual numbers so that you can budget and plan your finances accordingly. So the minimum, if you're an employee and you start working for an employer without being pregnant already, then you'll be entitled to statutory maternity pay, which is six weeks at 90% of your average weekly wage, followed by 33 weeks at the statutory rate of £194.32 per week. And then you get 12 months maternity leave. The last three months are usually unpaid. So that can sound quite scary because the statutory rate is 44% of the national minimum wage.

But the good news is that two thirds of employers in the UK offer some sort of enhancement. So the best enhancement that we've seen at Nugget is 12 months full pay, but enhanced pay can mean anything over the statutory minimum. So it can be as little as six weeks full pay, which is only 10% above the minimum. And then for dads and partners, you're looking at the statutory as two weeks leave at £ 194.32.

Iona Bain: And you can use Nugget's own database to find out which employees offer the best policies in this area.

Katie Guild: Yes. So it's one of the first, well, it is the first product that we built at Nugget. So we have now the UK's biggest database of parental leave policies, which has been crowdsourced from our community. We have over 900. And that was created because you can feel nervous about asking your employer or prospective employers what the parental leave policy is, even though that's kind of the most important part of your financial planning for a baby.

Iona Bain: Yeah.

Katie Guild: Because you might be scared of being discriminated against being passed up for a job because they might think you're planning to have a baby or being passed up for a promotion. So we wanted to make that information as free as possible to access, but also that data can be used really powerfully because you can use it to negotiate a better parental leave policy with your current employer. If you look up your employer's competitors or the industry that you work in, use that data to see and benchmark how your current employer's offering compares. And if it's falling behind, then that's a really great business case to bring to your employer and advocate for more money. And we've had lots of people in the Nugget community be really successful with that, going from statutory to three months full pay or six months full pay. And that's the difference of thousands of thousands of pounds. So it's one as the quickest ways that you can boost your money on parental leave.

Iona Bain: That's fascinating. And it's a reminder that this doesn't just matter when you're looking for a new job. If you are already employed and happy, but you think that the maternity and paternity policy could be better, then you can go and have that conversation with them.

Katie Guild: Absolutely.

Iona Bain: And having a baby, as you've outlined there, can mean quite a big drop in your income. What are some of the practical ways that you can mitigate that?

Katie Guild: Yeah. For most people, it's going to be a big financial drop. It can feel really stressful. The first thing I would do is get those numbers out of your head and onto a spreadsheet or a piece of paper, because actually knowing the reality can do one of two things. First of all, it could be not as bad, here's hoping, as you thought it was going to be. And that's quite often the case actually, once you start looking at the real hard numbers. Or there is a deficit, but at least then you've got a number that you can work towards and that might look like you or your partner picking up more shifts or doing a side hustle, but at least you have something to work towards. So having a clear plan. And then if you have a partner having those conversations about the money before the baby arrives is really crucial because when you're tired and you've got a screaming newborn, the last thing you want to do is be feeling resentful about how you're splitting the bills.

So if you can have that conversation beforehand, that is really helpful, because there is also typically a bit of a power dynamic change when you're on maternity leave. If you're used to having your own money and going to work, suddenly you're at home with the baby all day and you might be taking on more household chores. So then having that added tension about money can make things quite complicated. So if you have a bit of a plan going into that, it eases a lot of things for the future.

Iona Bain: Yeah. It's a real recurring theme in this podcast, having those open conversations with your other half and making sure they understand that that change is coming and making sure you're both prepared. Now, if you're self- employed, it can be even more challenging because you don't get maternity or paternity pay from an employer. And this is actually a situation that you've been in yourself. So Katie, can you talk us through what you learned from that and what you would share for anyone else who is self- employed and thinking about becoming a parent?

Katie Guild: Yeah. It's the reason that I started Nugget actually was because of my experience of my first child and being self- employed. So when you're self- employed, you receive maternity allowance, which is worse than statutory maternity pay because it's a flat rate. So if you're entitled to the top rates, you receive £194.32 per week for 39 weeks. So you're missing those first six weeks and 90% of your average weekly wage. Also, maternity allowance is quite restrictive, so they only allow you to work 10 KIT days on your business, which as a business owner can feel very scary because how are you meant to keep a business and a baby alive at the same time?

Iona Bain: Yeah.

Katie Guild: When you're applying for maternity allowance via the DWP, because you're receiving the money from the government, often what happens is, your maternity allowance is based on how many class two national insurance payments you've made. So if you haven't paid enough, sometimes you can get a letter through saying that you're going to be owed the minimum amount of mat allowance, which is 27 pounds a week. That can feel very scary for a lot of people. But the thing to know here is usually you'll get a second letter through from the DWP, which lets you know how many class two national insurance contributions you need to pay in order to get the top rate. So if you just pay that, it's usually around 50 quid, then you get guaranteed the higher amount.

Iona Bain: And is it possible to still have passive income if you're self- employed and on maternity leave?

Katie Guild: Yes. So passive income is allowed under the DWP's rules. They just have an issue with you actually working whilst on maternity leave. And self- employed fathers and partners, important to note, don't get any pay whatsoever.

Iona Bain: Right.

Katie Guild: So the self- employed when it comes to parental leave do need to plan more carefully.

Iona Bain: Obviously when you become a new parent, that brings a lot of new costs into your life, which can be quite scary. What tips can you share that will help lighten the load?

Katie Guild: So at Nugget, we say that actually there are only two things that you need to buy completely new for your baby, which are mattresses and car seats. So we really recommend looking at second-hand options. There have never been so many options on the internet like Vinted and Facebook Marketplace. They can become your best friend. They're also really handy for when your baby grows out of things whilst you're on maternity leave to then resell some of the things you've bought and make a bit more money on maternity leave. Also, renting is a really great option and a good piece of advice is that you should buy for the baby in front of you, not the baby that you think you're going to have when you're pregnant, because you don't know what baby you're going to get. And you could have spent a load of money on really expensive sleep things, sleep aids, when in fact you get a beautiful sleeper who sleeps through the night.

Iona Bain: And also don't discount the hand- me- downs.

Katie Guild: No, absolutely. My baby is wearing all of my son's clothes. Makes the second babies a lot cheaper as well because of that reason.

Iona Bain: That's true. That's true. Yeah. I basically lived in my brother's hand- me- downs for about six years.

Katie Guild: Fair enough.

Iona Bain: Childcare costs. This is a huge expense for new parents. It can be a real shock. Can you talk us through how people can mitigate the cost of that?

Katie Guild: Yeah. So important to say there's two main childcare schemes, tax- free childcare, which is essentially a 20% discount on your childcare bills up to the value of £2,000 per year per child. And this is an important one because you can use it from zero to age 11.

Iona Bain: Right.

Katie Guild: So you can use it for wraparound care, summer camps, stuff like that. So it's not just for babies. This can be used in tandem if you're in England with funded childcare hours, which is for babies over the age of nine months, and that's 30 hours per week. We say funded, not free, because the reality is most parents are paying something for those hours. So you might have to pay for meals or days out activities, things like that. But also those 30 hours are term time only. So if you're a parent that works consistently throughout the year, you'll want to stretch those hours. So 30 hours a week actually becomes 22 for most people.

Iona Bain: Am I right in thinking that depending on where you live in the country, that funded childcare will go further in some areas than in other areas?

Katie Guild: Yes. And nurseries and child minders apply those hours differently.

Iona Bain: Right.

Katie Guild: So you have to really speak to each individual provider to see how they're applying those hours.

Iona Bain: So it's about doing the research on how the childcare in your area works and how you can then make use of that scheme in that context.

Katie Guild: Absolutely. And also when they're eligible is really key. Sometimes you need to move your maternity leave return dates to enable them to get into childcare on time. So the best resource that we would recommend using is the Best Start in Life website, which is government website. And you can put in your baby's details, birthday, and your email address. And then when your baby is eligible for these schemes, they automatically email you so you don't forget to apply-

Iona Bain: That's good to know.

Katie Guild: ... 'cause that can be costly.

Iona Bain: That's really, really good to know. Now let's talk about pensions, because this is something that can be very understandably forgotten about when you're concentrating on the day- to- day priorities of raising a family, but becoming a parent can have a real impact on your pension, particularly if you're a mom who's taken time out of work. Can you talk us through what the impact of going on maternity leave can be on your pension and what you can do to make sure that that future fund stays on track?

Katie Guild: Yes. So the pension gap begins for most people at maternity leave. And this is because when you go on maternity leave, your pension contributions will drop. They'll be based on your actual maternity pay. And then if you take unpaid leave at towards the end of your maternity leave, neither you nor your employer will be contributing to your pension. So that's where the gap starts. But if you have a defined contribution pension, it's really important to note that your employer's contribution should be the same as your pre- maternity leave wage. So it should be based on your full pay before you left for maternity leave. So if you check your payslip, your employer's contribution shouldn't have reduced as a result of you going on maternity leave. We've seen in reality that for lots of women, their pension contributions are dropping to be based on their maternity pay, which means that they're missing potentially thousands of pounds in contributions. So it's really important when you go on maternity leave just to check your payslips and make sure your employer's contribution has remained the same, essentially.

Iona Bain: And sometimes this is a mistake on the part of the employers, but it's still a mistake that needs to be fixed.

Katie Guild: Absolutely. And if you're also missing any compound interest over that time, that needs to be rectified as well.

Iona Bain: So anybody who thinks that they might have missed out, even if perhaps they took their maternity leave a while ago, they could still go back to that employer.

Katie Guild: Yeah, that money is rightfully theirs.

Iona Bain: Okay. I think a lot of people are going to be taking notes on that one. Also, when a child is born, you may have members of your family or even friends want to gift that child money to give them a headstart in life. What would you recommend in terms of making the most of that money?

Katie Guild: I can speak to this personally, because if you came around to my living room, you'd be shocked at the amount of plastic toys there.

Iona Bain: Oh.

Katie Guild: And we've got two boys now. We have too many dinosaurs and cars. So we personally are now saying to grandparents and some family and friends, " If you could put that money towards their junior stocks and shares ISA or premium bonds instead, we'd really appreciate it because they have enough toys."

Iona Bain: But it's tricky, isn't it? Because sometimes you want to give them something cute and fluffy and see the-

Katie Guild: Yeah, it's a balance.

Iona Bain: Yeah. And see that joy and pleasure that they get in playing with a toy.

Katie Guild: Yeah.

Iona Bain: But actually, if they were to put that money in a junior ISA, for example, then over time, that would give them a lot more joy and pleasure.

Katie Guild: Yeah. So it's just about balancing that, I think, managing your children's expectations with how much room you have in your house and what you can do for them in the future. But opening a junior ISA, whether that's a stocks and shares, whether it's a cash ISA or even a junior SIPP, so a self- invested pension, you can start saving for their pension now. Obviously that's got a massive investment horizon. All of those starting small investments can be really helpful for the future.

Iona Bain: And we're very much talking about money and the practical side of things on this podcast, but let's not forget about wellbeing. That's incredibly important. You can't pour from an empty cup. You need to be taking care of yourself as a new parent. How can you make sure that you balance all the responsibilities that you have to take on with looking after your mental and physical wellbeing?

Katie Guild: Yeah, such an important question. Something I didn't really learn until my second baby is instead of asking your partner to have time to yourself, you just tell them. So, " I'm going to the gym at this time, bye- bye." Because I think when you start asking, it again has that weird relationship feeling, like, it wasn't a dynamic that wasn't there before. And you maybe get resentful 'cause your partner's off doing things without having to ask you to go for a shower. It's so easy for your first child to become a bit of a martyr to your child, but by actually having time to yourself and doing it without having to ask, I think can make you a much better parent.

Iona Bain: And I presume as well, it's so important to just take the pressure off.

Katie Guild: Yeah, yeah. When you are thinking about money on maternity leave, it is so important not to strip out everything, all the fun and joy from that budget because on maternity leave, it's a long time. You've got a little baby, often it's quite lonely and it might be an opportunity to make loads of good friends. It's really important that you have money to go for a coffee and get out of the house. Sometimes people put money on gift cards, so they buy them before they go on maternity leave so that they've got that ring- fence money, guilt- free. It's already been spent, which I think is a nice little hack.

Iona Bain: That's a really good idea. I like that. So let's wrap up with something that people can think about as they go away and have a cup of tea as they're waiting for the kettle to boil.

Katie Guild: So if you're thinking about having children save, save, save, save. You want to start saving as soon as possible, really. Saving now and earlier puts a lot less pressure on you to save thousands of pounds in a nine- month period once you find out you're pregnant. So start saving if you're thinking about having kids. If you're pregnant currently, have a look at nurseries in your area. Sounds mental, being 12 weeks pregnant and going to nurseries, but dependent on your area, there can be a real shortage and it's a good idea to get on waiting lists. And if you already have children, set up a junior ISA of some description and just start saving even if it's really small, a small direct debit, something that you can manage.

Iona Bain: Great. So save and scope out those nurseries.

Katie Guild: Yes.

Iona Bain: Brilliant advice. Thank you so much, Katie.

Katie Guild: Thank you for having me.

Iona Bain: We really hope this episode has helped you understand your rights, your options, and the ways you can be more in control of your finances when starting and raising a family. And if you know of anyone who's thinking about all this, maybe you can share this episode with them and help them to feel A Little Bit Richer too. Next time, I'll be joined by author and financial coach, Selena Flavius, to talk about how our attitudes to money affect our longer term financial wellbeing. This podcast is brought to you by L&G. I'd love it if you could share the podcast and help others get A Little Bit Richer too. You can keep up with the show on YouTube, TikTok, and Instagram @legalandgeneral. And if you have a question or a topic that you'd like answered on the show, please get in touch on our socials. We would love to hear from you. Until next time, see you soon and thanks for listening.