Martin Parish, Head of Workplace Pensions and Financial Wellbeing, Aon
October 2018
In September we saw the first children who took advantage of the Child Trust Fund come of age.
As these children turn 16 they will be able to take control of their Child Trust Fund (CTF) account, but it won’t be until they reach the age of 18 that they will be able to access the funds they have accumulated over the years. Control is a good starting point to empower these children to better understand what they have, how it materialised and what their CTF might deliver.
In 2005, the UK government launched Child Trust Funds (CTFs) as a way to help children save for their future. They were available for children born between 1 September 2002 and 2 January 2011 and the government funded them with a starting payment voucher of up to £250, or £500 vouchers for families in receipt of Child Tax Credit.
In total, around 6.1 million CTFs were set up and it is estimated that with the government funding, family contributions and the potential growth achieved over the years, they are now worth in total £9.3bn, with the average account of a person who turned 16 in September holding £2,175.1
With such a large sum of money coming into the hands of 16-year-olds in the next few years (starting from this September), now is the perfect time to engage with them to ensure that they are well-prepared to understand the key decisions they face over the coming years. Do they cash it in, buy a car, change the investment strategy, repay any debts, help fund further education…
There is a myth that young people are not interested in savings and their finances, but it’s unlikely that this is actually true. Some studies suggest they are indeed interested, but we need it to make it contextual in order to keep them engaged and curious.
For example, what if those turning 16 with a CTF were encouraged to research options for funds they would like to invest in? Young people tend to be interested in sustainable initiatives. We could therefore suggest that they find a fund that invests in responsible businesses that they like and analyse if it is able to provide returns for part of their savings. If they are keen on sports, we could task them with finding the best performing sports-related stock and deciding if they want to invest in one/some of them, for example. Could they perhaps even track the performance of their favourite technology provider?
A general lack of interest in savings is a serious issue in today’s society but the lack of financial education amongst youngsters is a major concern also.
A survey2 last year by regulator, the Financial Conduct Authority, showed that half of UK adults were financially vulnerable, with those aged 18-24 having the lowest level of financial resilience. This group was also the least confident in managing their money and the least knowledgeable about financial matters.
If we can galvanise children to take an interest in their finances now, when they reach the age of 16, we may see this interest continue after they become 18 which provides a base for understanding into the future.
The first round of teenagers taking control of their Child Trust Funds provides a good opportunity for parents, schools and the wider community to engage with them and discuss their finances, but it should not just be limited to this group. We should ensure that all children and young adults take a more serious interest in their finances and financial well-being to ensure that future generations are less likely to be financially vulnerable when they reach their retirement age.
1 According to research by OneFamily: https://www.onefamily.com/our-story/media-centre/2018/16th-birthday-child-trust-fund-10-billion-held-child-savings-accounts/
2 Financial Conduct Authority (2017), Understanding the financial lives of UK adults, Available at: https://www.fca.org.uk/publication/research/financial-lives-survey-2017.pdf#page=17
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