Child Trust Funds – What’s the real problem?
Lisa Taylor ofMoneyfacts.co.uk comments:
“Next week is national Child Trust Fund week, Ed Balls will attempt to raise awareness of the saving scheme, as take-up still remains disappointingly low, with a quarter of parents still not investing their voucher.
“But is the low take-up the sole problem, or are there other factors which need addressing?
“My first query is, why aren’t parents jumping at the opportunity to receive ‘free’ money for their children?
- Is the message getting across to the right people? Putting information in the financial sections of the press is all well and good, but are those people who are not opting to use their voucher likely to read these pages?
- Are consumers put off by the options available? Should they choose cash or equity-based funds? Which provider should they choose? How do they find the best return?
- Are parents put off by the paperwork? A significant proportion of the UK adult population have some sort of reading and/or writing difficulties.
- Many may be deterred from visiting banks to open an account for their child purely based on bad experiences they had in the past, when they may have had financial problems.
- Perhaps the time period for initial investment at a year is too long. Do parents put it off as ‘I’ll do it tomorrow job’, eventually getting pushed further and further back in their minds. A shorter deadline may raise its profile in the household and also reduce the amount of vouchers left dormant for a whole year.
“But for those who choose not to invest the voucher themselves, all is not lost. In fact they may see better returns than those parents who spent time shopping around and chose a cash based account.
“So if ultimately all children receive a Child Trust Fund account, whether selected by the Government or their parent, the root of the problem must lie deeper.
“Of course the initial take up rate is disappointing, as this infers a lack of popularity and perhaps a low top up rate. So why not do more to raise the profile of the CTF and the long term benefits? How about providing some examples of potential return that children will receive, based upon various examples of regular savings, and shorten the deadline, to keep the scheme fresh in parents’ minds?
“The key to making CFT work lies in the longer term. Parents should be encouraged to make top up payments, no matter how small. Some cash based funds will offer bonuses on top ups, and equity schemes may also offer incentives. If the full £1,200 contribution is made for the 18 years, this would offer a fund of £22K, before taking account of any growth. This is the sort of figure that should be emphasised to encourage parents to save regularly.
“But here lies the second issue. Whilst these funds are designed to give the child a helping hand into adulthood, whether it be for a house deposit, education, career or family, it is only natural that a proportion will fritter way these monies as soon as they reach their 18th birthday.
“While this situation will never be completely eliminated, financial education for this current generation of children can play a key role. Not only do the parents need to realise the long term benefits of saving, the children also need to be taught to understand value of money from an early age. It is perhaps time that financial education is introduced as part of the national curriculum; after all it plays a key part in just about everything we do.
“So whilst the CFT take up is not as positive as the Government would have hoped, withdrawing them would leave a raft of problems or inequalities. The key to their future, and to help change the UK to a nation of savers is financial education, reinforcing the benefits of long term savings, and thus trying to move away from the current ‘live for today’ culture.“
Moneyfacts.co.uk Best Buys
http://www.moneyfacts.co.uk/savings/bestbuys/savings_childtrust.aspx
www.moneyfacts.co.uk/assets/docs/equityctf.pdf
NOTES TO EDITORS:
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