The British government at beginning of this year officially launched its Child Trust Fund (CTF) initiative in an effort to encourage parents and children to develop savings habit and to teach children value of saving their own money.
Chancellor, Gordon Brown said, "The Child Trust Fund is designed to ensure that every child in our country has assets and wealth and that no child is left out and all children in Britain have a stake in wealth of nation".
The basis of CTF scheme is that every child born in UK on or after 1 September 2002, will receive an initial Government payment of £250-£500 (depending on family income), which must be placed into a tax-free CTF savings account which cannot be accessed for withdrawals until child reaches 18 years of age. Additional contributions to account can be made by child’s family or friends, and government also plans to make another payment to children on their seventh birthday. Parents that do not invest government's gift within a year will have it invested for them by Inland Revenue.
This ‘free money’ for children idea seems on face of it to be a great idea for parents. A recent survey by Halifax has shown that, of those parents who have already opened a CTF account, six out of 10 planned to make further contributions, and wanted their children to use cash from a matured CTF to pay towards a university course. The survey also showed that 28% of parents hoped cash could be used to buy a car, while 19% hoped money could be put towards a deposit for a flat or house.
Although some families have taken to idea by quickly investing funds to maximise cash return for their child when they reach 18, with figures from HM Revenue and Customs recently showing that nearly half a million CTFs had been opened, others have been more reticent, with approximately 1.2 million CTF vouchers sent out to parents still not invested. A study by Abbey found that of those who had so far not invested their CTF voucher, nearly two-thirds stated that they, "just hadn't got round to it yet", while about one-quarter had not invested money because they did not know which supplier to choose.
Another problem that has been recently highlighted is lack of provision that has been made for Islamic children, as none of existing CTF accounts complied with Sharia law. Under Sharia law, it is forbidden to give or receive interest or to invest in unethical firms. This meant that, in order to use voucher, parents of 120,000 eligible Muslim babies could only choose non-Sharia compliant accounts. Thankfully, in a move welcomed by government, first Sharia compliant CTF has just been launched by Children's Mutual, allowing a growing community of people who were previously reluctant to invest their CTF, opportunity to benefit from CTFs. The take-up of CTF has proved to be extremely disappointing for Government, with those who have not so far invested their voucher being at risk missing out on valuable growth to their fund. Ray Milne, managing director of Halifax Financial Services, said that "Most parents probably still have opening a Child Trust Fund on their 'to do' list, but we're urging them to act now and ensure their children benefit from their investment". Whilst many view whole idea of CTFs as a waste of tax-payers money given ensuing pensions problem that is looming, others see that any benefit to future university students would be overshadowed by rising cost of university tuition fees.