CTFs create head start for children

The Child Trust Fund (CTF) scheme is creating a new generation of responsible savers and encouraging their parents to become the same, according to research from Family Investments.

The Family Investments’ annual Index questioned over 1,200 UK parents about CTFs and found that the government’s saving initiative is inspiring over a third of parents to open additional savings accounts for their child. In addition, the results debunk the fear that children will go on irresponsible spending sprees when they get their hands on the funds once they reach 18 years old.

Family’s Index found that more than a third (36 per cent) of parents have been motivated to open an additional savings account for their child since opening a CTF, depositing an average of £283 per year. In fact, 40 per cent of parents said that setting up a CTF was the first step they took to begin contributing to their child’s financial future. Other events that motivated parents to start saving for their children were an increase in salary (29 per cent), paying off debts (24 per cent) and a bonus/windfall (21 per cent).

Last week’s announcement by HM Revenue & Customs (HMRC) reported that the percentage of parents with stakeholder accounts since the scheme was launched has risen and those opting for cash-based accounts has declined. HMRC announced 76 per cent of accounts are now stakeholder compared with 19 per cent that are cash-based and 5 per cent other. Family’s own stakeholder product is proving increasingly popular as a third of people are now regularly topping it up, compared with just over a quarter when the scheme was introduced in 2005.

According to Family’s figures, those parents with its stakeholder CTF who have additional savings accounts and make the average regular payments into both vehicles could be in a position to provide their child with at least a £15,560 head start into adulthood. This means that the children whose parents regularly top up CTFs and additional savings accounts are sitting on a windfall of more than £11bn.

Miles Bingham, Marketing Director of Family Investments, said: “Family’s research shows that CTFs trigger parents to start thinking about their child’s financial future, inspiring them to set up other savings accounts.”

Family’s research also debunks the misconception that children will waste their CTF money when they turn 18 years old. As the table below illustrates, parents predict that their children will be responsible with their fund as there is little discrepancy between what parents hope and what they expect their child spend the money on.

Just 3 per cent of parents thought their children would spend money on fashion accessories, while less than 1 per cent thought their kids would use the funds to pay for cosmetic surgery.

Miles Bingham added: “The good news is, our research shows that parents have such faith in the impact of the scheme that they plan to advise, rather than control, how their children spend the fund once they reach 18. Nonetheless, there is still much work to do to ensure that parents maintain momentum and continue to maximise the final value of their child’s CTF account. We worked closely with the government to push the development of paperless applications and continue to lobby for additional government top-ups at secondary school age. It is our hope that children can make the most out of their nest-egg once it is fully matured.”