Thumbs up for child trust funds, but 18-year-olds urge controls on how money is spent

The Government’s new Child Trust Fund, which helps children save a tax-free cash ‘nest egg’ for their 18th birthday, has broad support from political parties, state departments, think tanks and pressure groups alike, according to new research sponsored by the Economic and Social Research Council (ESRC).

However, today’s 18-year-olds want to see greater restrictions on how the money is eventually spent, says the study led by Professor Andrew Gamble of the University of Sheffield.

Under the scheme, begun in April, all children born on or after September 1, 2002, and qualifying for child benefit, will be given a savings account aimed at providing them with financial assets to draw on as they start out in adult life.

Each child will receive a free kick-start from the Government of at least £250, rising to £500 for families in receipt of full Child Tax Credit. They will get a further sum on their seventh birthday, though how much has yet to be announced.

Relations and friends can boost an account by up to £1,200 per year. When they are old enough, children themselves can learn the saving habit by adding money they receive as gifts or from part-time work.

Professor Gamble said: “The Child Trust Fund is important and unusual because it is the first new universal benefit for 50 years and the first capital grant scheme open to all anywhere in the world.

“The fund is also different because, unlike many government policies, it is long-term, with the money tied up for 18 years. It is clearly aimed at changing attitudes and behaviour.”

Child trust funds are an example of what Professor Gamble calls the ‘new assets agenda’, now a focus for discussion in a growing number of countries. Interest in the UK scheme is particularly high in other English-speaking countries, notably the US, Canada and Australia.

Under the current rules, account holders, once 18, will be free to reinvest the money or spend it as they choose.

The study found that even those politicians, officials and others who would have liked restrictions, accepted this policy given the practicality and undesirability of policing the decisions of account holders.

However, when researchers spoke to 18-year-olds they found them strongly in favour of some sort of restrictions on the use of the grants, especially if, as they hoped, the amounts involved were larger than at present.

Though young people very much supported the principle of capital grants and their potential for helping the less well off, they were also in favour of higher sums than currently envisaged.

The funds are expected to provide a minimum of £1,000, whereas most of the 18-year-olds felt that £10,000 could make a real difference to young people’s lives.
At the other extreme, they regarded a suggestion of £50,000 as being too much for young people to handle responsibly.

Top of their list for what to spend the money on was higher education, followed by a car, starting a business or saving for a deposit on a home.

The one notable difference between the sexes – apart from one young woman who wanted to spend £50,000 on her wedding – was that female groups more often raised the issue of providing for childcare.