In 2009, I made a pivotal choice that would significantly impact my son’s future: I began contributing £10 each month to his child trust fund (CTF) account.
While this may not have seemed substantial at the time, nearly 18 years later, thanks to favorable stock market trends and an initial government contribution, he is poised to receive approximately £10,000. Initially, he felt uncertain about how to proceed with this newfound financial resource, a sentiment shared by many young adults.
The CTF program was established by the Labour government in 2005 and benefits all children born between 1 September 2002 and 2 January 2011. The initiative, spearheaded by then-Chancellor Gordon Brown, aimed to bridge the wealth gap and enhance financial literacy among youth. Parents received an investment voucher, typically worth £250 (or £500 for families with lower incomes), which had to be deposited into a savings or investment account by the child’s first birthday; otherwise, the government would handle it.
Once the account was set up, parents could contribute additional funds until their child turned 18, with a maximum annual contribution limit of £9,000. When the child reaches 16, they can take charge of managing the account, and upon turning 18, the funds become theirs to withdraw or transfer into an adult ISA.
Despite the program’s undeniable benefits, many teenagers are unaware of their CTF or are unsure how to manage their funds, marking a significant financial decision in their lives.
Gavin Oldham, who leads the Share Foundation (sharefound.org), an organization dedicated to promoting financial literacy among young people, highlights the issue: “We’ve helped connect 121,000 individuals to their accounts at no cost, yet there remains £1 billion in unclaimed CTF funds belonging to low-income young adults,” he states. “This situation is more extensive than the Post Office scandal, affecting a greater number of people.”
Challenges such as lost information, mergers between providers, and changes of address complicate the process of claiming these funds. Oldham believes that HM Revenue and Customs (HMRC) could enhance efforts to help individuals locate their money using national insurance numbers and the PAYE tax system.
“Young people might walk away from the process due to its complexity,” he warns. “It’s crucial to establish a straightforward method for releasing these funds when beneficiaries reach adulthood.”
Moxxie, a 19-year-old from Bath, was unaware of his CTF until shortly before his 18th birthday and faced difficulties in tracking it down.
“My parents didn’t have the necessary details. I had to reach out to someone who provided login instructions. I waited for a code in the mail, but it didn’t work, necessitating a repeat attempt,” he explains. “It took months of going in circles. Others might simply give up.”
His account contained “a few hundred pounds,” as his parents had not contributed additional funds.
Foresters, a company managing nearly 400,000 CTFs, is actively working to educate young people through outreach initiatives.
“We visit schools and colleges to raise awareness about CTFs,” states Nici Audhlam-Gardiner, CEO of Foresters UK. “In one school, only half the students were aware of the CTF program. We have urged the government to take on more responsibility in this effort.”
Audhlam-Gardiner notes that when parents are less engaged with the CTF, young adults are less likely to reinvest their money once they reach 18.
“From the outset, we promoted the scheme. Our advisors conducted in-person financial consultations and informed parents of the potential growth of their funds,” she explains. “When parents show interest, young people are more likely to take the matter seriously upon turning 18.”
Similarly, George, an 18-year-old from Bristol, discovered his account was worth a few hundred pounds, in addition to his personal savings.
“My parents had forgotten about it,” he recounts. After reading a news article, he asked his mother, who helped him find the necessary information.
“I’m good at saving, so I withdrew my CTF funds and deposited them into my savings account,” he says. “I earn 3.1% on the first £1,000 and 1.15% thereafter.”
George expresses that “handling money is somewhat unfamiliar. We haven’t discussed it much in school. They touch on saving money, but not on how to manage it. If I had more knowledge, I might have chosen to invest.”
Polly, an 18-year-old art student from South Gloucestershire, opted to place her CTF funds into her bank account, feeling more comfortable than investing.
“I was thrilled that my CTF was nearly £1,000, but I didn’t know what to do next,” she shares. “There were options listed on the website, but they weren’t clearly explained, so I just withdrew the money. I feel safer knowing it’s in the bank because I understand that.”
Gina Miller, from MoneyShe, an investment platform focused on financial education, is concerned that young individuals are missing opportunities due to a lack of guidance.
“This is their first experience with real money, which is exciting. The worst decision would be to leave it in a bank account,” Miller warns. “They must outpace inflation; otherwise, it’s like having a slow leak: the value of their money will gradually diminish.”
Foresters has introduced an interactive dashboard for account holders, allowing young people to monitor their funds and performance, along with an option to book a complimentary appointment with a financial advisor.
Moxxie spent his CTF funds because he felt he didn’t have enough to invest, but Miller encourages starting with any amount.
“Youth have time on their side; even a small initial investment can grow significantly thanks to compounding. It’s even better if they continue to contribute over time,” she emphasizes. “This serves as a foundation and fosters good financial habits for their future.”
Jack from Buckinghamshire discovered he was due to receive £33,000 just weeks before his 18th birthday, leaving him feeling overwhelmed. Fortunately, his mother’s friend is a financial advisor.
“She sat me down and explained the various options available,” he says, showing the importance of having informed support in navigating these financial waters.
