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Small beginnings

Child trust funds Families are embracing the CTF but advisers are being slow to take advantage of the UK’s first universal savings product, now two years old. The Children’s Mutual chief executive David White reveals why he thinks it is important for advisers to become involved.

Research by The Children’s Mutual undertaken among parents and children shows that 73 per cent of 11 to 15-year-olds believe their parents will pay for them to go to university while 60 per cent expect their parents to help them buy their first home. That will not come as much of a shock to parents, as 91 per cent of those we spoke to said they would help fund their child’s university education and just under half said they would help their child get a foot on the property ladder.

Eighty-eight per cent said they would cover the cost of their child’s driving lessons and 83 per cent would put aside money for their child’s wedding. Parents clearly have the best intentions but where will the money come from?

The CTF is big news for families and advisers. What better excuse has an adviser had to talk to families about their finances? There has never been an opportunity like this but many advisers are reluctant to get involved with a product which is set to have a lasting impact on the face of UK finances.

Advisers who ignore the merits of CTFs in developing client relationships are really missing a trick.

Children anticipate that their parents will help foot their bills in future but, unfortunately, many families have not set up their finances to meet these demands. The recent introduction of university tuition fees has added almost £10,000 to the cost of three years at university and rocketing house prices have pushed up the value of the average property by 200 per cent in the last 10 years. The reality is that if parents have not received good holistic financial planning advice well in advance of their children growing up, they face some tough options.

Families are faced with the dilemma of whether to raid the savings they have put aside for their own future, remortgaging or diverting their pension top-ups to assist their offspring. These may be people in their 40s, 50s and even 60s who should be considering paying off their mortgage early or maximising pension payments, not going into further debt.

The CTF could be used as a catalyst to speak to young families and plan all their future financial needs. Advisers can cement the client relationship by suggesting early planning and preventative action.

It should not be a hard sell as advisers are likely to be preaching to the converted, at least on saving for their children. Research shows that the CTF is already embedded in the psyche of parents and that it is changing savings behaviour. According to the London School of Economics, parents are so engaged with the CTF that when they are given the hypothetical choice of receiving the CTF money in their child benefit or keeping it in the CTF, they choose the CTF option because they recognise the worth of saving for their child over the long term. This is not just about hypothetical scenarios. In the last eight months, we have seen that at least half the customers who open a CTF with The Children’s Mutual set up a direct debit at the same time. This is double the amount in the pre-CTF world. Contributions have risen from an average of £15 a month to £24.

But it is the lump sums that are experiencing the biggest upturn, with CTF contributions appearing on many Christmas lists. We saw an uplift in contributions of 200 per cent in January because parents are asking for presents with a lasting legacy for their children.

What this legacy will look like in 18 years is unknown but, according to estimates from the Pep and Isa Managers’ Association for the first 16 months of the CTF, children have already benefited from over £100m of voluntary contributions. Our own figures suggest that the majority of this money could be used to pay for higher education, housing, home improvements, travel or, better still, be reinvested.

The recent announcement that CTFs will automatically be rolled into Isas when a child reaches 18 is promising news for everyone looking to re-engender the savings culture in the UK.

By September, every eligible child aged five and under will have received a CTF voucher. More than three-and-a-half million children will be part of the CTF generation, which is more than a quarter of all the children in the UK.

A new generation is growing up and it is up to advisers to seize the opportunity and start providing holistic advice for the entire family about their long-term futures.

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