ONE YEAR ON AND NEARLY HALF OF CHILD TRUST FUND VOUCHERS STILL NOT INVESTED

16 January 2006

Yet research shows younger generation more likely to save than squander

It has been one year since the Government launch of the Child Trust Fund and almost               one million  vouchers have yet to be invested. Nationwide Building Society continues to encourage parents to invest their child’s voucher sooner rather than later in order to gain as much benefit from the investment as possible. The Society recently issued a report on children’s savings which calls on the Government to do more to ensure vouchers are invested within the first three months of receipt.

The amount  children could receive from a cash Child Trust Fund will vary significantly from around £1,000 for those who have just the money provided by the Government, to around £9,000 for those whose parents add £5 to the Child Trust Fund each week and almost £40,000 for those parents who top up the account by the full £1,200 each year. Children holding an equity Child Trust Fund account could receive an even higher return.

A study conducted by Nationwide last year reveals that the larger the sum of money received by children at the age of eighteen, the more likely they are to spend it responsibly.

The research examines how young adults today would spend their Child Trust Fund lump sum on reaching the age of eighteen and demonstrates the importance to parents and relatives of topping up the fund.

Nationwide – a provider of both cash and equity Child Trust Funds – conducted the study among 17-21 year olds. Results suggest that a young adult whose Child Trust Fund matures with a lump sum of £40,000 would, on average:

• Save over a quarter (27%) of the money for ‘the future’.
• Stash away 22% towards a deposit on a house
• Spend only 10% on holidays and entertainment
• Spend a mere 9% on shopping

In contrast, children who receive a lump sum of £1,000 are more likely to, on average:

• Spend 19% of the money on shopping
• Spend 20% of the cash on holidays and entertainment
• Stash only 16% in general savings
• Contribute only 3% of the money towards buying a house

Interestingly, very few young people said they would use the money for university fees or further education, regardless of the size of the lump sum. This presents a new challenge for parents and the Government who may want to see children use their windfall towards meeting the costs of tuition fees. The majority of university students would use a substantial amount of their matured Child Trust Fund to clear debts accrued while studying.

Nationwide’s executive director, Stuart Bernau, said: “Parents have a vital role to play in demonstrating to children the importance of saving. Mums and Dads can help children look to their future and consider how best they use their Child Trust Fund. Whether it will be put towards education, a first home or a wedding we believe the Child Trust Fund will assist young people in understanding the value of savings”.

Parents of older children who do not qualify for a Child Trust Fund may also want to think about opening a savings account or investment fund for them. Smart, Nationwide’s savings account for young people, can be opened with just £1 and is one of the most competitive children’s accounts available on the high street. Alternatively, parents may opt for the Nationwide investment fund, which can be opened on behalf of their child with a minimum of £20.