Despite the initial slow takeup of Child Trust Funds (CTFs), more recently there has been signs that parents are beginning to understand them and take them more seriously.
For the uninitiated, CTFs are savings accounts for kids which cannot be accessed until the child is 18. When they’re born, the child receives a voucher from the government worth £250 to be invested in a CTF account. Parents can decide which provider they invest the voucher with, and what level of risk they wish to take. Once opened, it’s also possible to build up the savings with both regular or lump sum premiums (up to a maximum of £1,200 per year). At age 7, children get another £250 from the government.
The idea is to build up a nest egg which the child can use when they reach adulthood – ideally it is to be spent on responsible things such as University fees or a deposit for their first home, rather than booze or fags. Time will tell on that.
As I mentioned earlier, the initial take up of CTFs was disappointing – many parents neglected to make a decision about where they wanted to invest their vouchers, which meant the government ended up choosing for them. In many cases this will mean the money is invested in an account where the risk is lower and the returns are less. As the timeframe for the investment is long term – parent should look at the more adventurous funds available in the early years, in my opinion. As the childs 18th birthday approaches, it would make sense to reduce the risk, much like those approaching retirement reduce the risk to their pension fund.
More recently, nearly 90% of parents have invested their voucher – a vast improvement from when CTFs were first launched.
The amount going into CTFs is also on the increase – the average monthly premium is now £21.43, up 1% over 3 months, with the average lump sum rising 3% to £450.
Whilst it’s great to see people saving money for their kids and taking CTFs more seriously, it will be very interesting to see the effects these sums of money have on both the economy and these young adults’ lives. We will of course have to wait until 2020, when the savings of the first CTF vouchers begin to mature, to see how the money really does get spent.
Do you think it’s a good idea, guaranteeing a potentially large amount of money to those who are so young? Will it get spent or saved responsibly?
Photo by Carol Esther.