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Now we are three

As we celebrate the third birthday of the child trust fund, it is time to reflect on how much this baby of the savings world has grown up.

We can already claim that the CTF is revolutionising the nation’s savings habits and becoming firmly embedded in parents’ psyches.

Increasing numbers of financial advisers are engaging with the UK’s first universal savings scheme and acknowledging that its implications could be far reaching, meaning a very different financial model.

The Children’s Mutual has worked closely with the Government throughout the development and launch of the scheme, sharing our experience with long-term savings for children to help shape the best policy for the future.

In this year’s Budget, the Chancellor gave welcome news to families and CTF providers that from April 2009, accounts can be opened without vouchers being submitted to providers. Having lobbied for this change, we were delighted. The CTF vouchers are a great catalyst to remind parents to act but we estimate that around one in 10 account openings does not proceed because the voucher is not given to the provider.

In many cases, the parent opens an account over the phone or online but does not sent in the voucher so the account cannot go live. Many of these accounts then become Revenue allocated accounts because parents think they have invested the money but have not completed the circle.

For advisers, sending in the voucher means yet another layer of admin. This policy change makes the situation easier for parents and advisers and ensures the accounts are opened with their provider of choice.

There is more good news. According to recent research we commissioned from the Social Issues Research Centre, when the first CTFs mature in 2020, they could be worth around £2.4bn a year if families continue to save at the same levels as today.

Last year, nearly half of all accounts opened with us had a monthly direct debit top-up set up from birth. If average top-up levels remain the same, children could receive £9,750 at age 18 based on FSA mid-point projections. This represents a significant lump sum for the future.

When the CTF launched, one of the big concerns for advisers and parents was a lack of control over how these lump sums would be spent when the children turn 18. According to our SIRC research, parents continue to worry about this.

Forty-two per cent of parents think that if their child was given £20,000 at age 18, they would spend it on material goods and 19 per cent that they would splash the cash to have fun but youngsters have very different views.

We cannot ask today’s five-year-olds what they would spend their money on in the future, so instead we have spoken to today’s teens about what they would do if they received a payout today. Their answers bode very well for the future.

The majority would choose a combination of sensible options, the top being to continue to save the money, with spending on education and putting it towards the deposit on a first home as second and third choices.

The SIRC survey explains the difference in attitudes between parents and youngsters through their different upbringings. The parents grew up in a time when credit became readily available and learnt to borrow and spend but the younger generation are growing up in very different times. These children are starting to talk about saving now and spending later. According to the research, this trend will continue to grow, driven by financial education and having a financial asset from a very early age. For advisers, this delivers a positive message – the start of a new lifelong savings habit in the UK.

With the CTF generation likely to save their money or put it towards education or housing, the knock-on effect for the adviser market could be huge. Imagine a world where the average age of a first-time buyer drops back to the 20s because they have got a deposit to hand or a time where leaving higher education debt-free is feasible. That is what the CTF could deliver.

With debt-free graduates in their 20s and already on the property ladder, saving for the future becomes a reality far earlier on.

In the three years since the CTF launched, more than 3.43 million accounts have been issued and 39 per cent of our customers are contributing an average of £24 a month into their child’s account.

This is a great leap from the pre-CTF world, where just one in five children had a long-term savings account with around £15 a month being saved.

Every eligible child aged under five-and-a-half is now part of the CTF generation. The question for advisers is not whether they should be talking about the CTF but how they are planning for the impact it will have in the future.


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