Speakers' Corner

Would you entrust £100,000 to an 18-year-old?

The personal finance editor of The Express, Chris Torney looks at the new Junior ISA and asks: Would you entrust £100,000 to an 18-year-old?

By Chris Torney

The government has finally announced details of the Junior ISA, the scheme that is being brought in to replace the scrapped Child Trust Fund.

At a time of widespread spending cuts, the coalition thought the CTF – which gave children a £250 present at birth, and another at age seven – was just too expensive.

Junior ISAs will have the same tax advantages as CTFs – so there’s no income tax to pay on savings interest, and no capital gains tax on investment profits – but there will be no free cash.

It is to be hoped that this will not put parents off from saving for their little ones’ futures: after all, the government money was merely meant to give CTFs a bit of a kick-start.

It was only the extra contributions made by friends and relatives that could boost the funds’ value to a meaningful level.

Junior ISAs, when they are introduced in the autumn, will allow annual deposits of up to £3,000.

Provided investment returns are reasonable, a child whose family takes advantage of this allowance in full can expect to take control of the best part of £100,000 when he or she turns 18. At the very least, the savings pot will be £54,000 if £3000 a year is saved and that’s before interest.

But, as far as many parents are concerned, here lies the problem: as with CTFs, the money saved up in a Junior ISA will transfer in ownership to their son or daughter as soon as they become an adult.

When the trust funds were launched, this was a big bone of contention, as it will undoubtedly be again when the first Junior ISAs are set up.

On one side, we have parents who have every confidence their 18-year-olds will use their windfall sensibly, as a contribution towards the cost of a college education, or as part of a deposit on a first home.

On the other, there are the somewhat less optimistic mums and dads who are convinced their children will simply splurge the cash on nights out clubbing, summer holidays and the 2030 equivalent of Xboxes.

Unfortunately, if your innocent tot grows up into an irresponsible, uncontrollable teenager, the Junior ISA offers no option to wrest back control of the cash.

So what do you think? Would you be happy to entrust this sort of money to your 18-year-old?

My view is that it’s up to me as a parent to make sure I raise my little boy well enough to use the money saved for him wisely (famous last words, I know!).

However, I admit, it is certainly a gamble.

If you don’t want to take this risk, you could easily save for your child in your own ISA. This will curtail your own allowance (currently £10,680 for stocks and shares plus cash); and you’ll have to make sure you are disciplined enough not to dip into the fund every now and then.

But if it means you’ll put more money aside without having to worry about how it will be spent, this could be the best option. 

Hope for children's financial futures

David White, chief executive of The Children’s Mutual, writes for Confused.com discussing the oft-ignored value of the child trust fund...

This year will see the number of children in the UK who have a child trust fund surpass the five million barrier.  Reaching this milestone represents a significant achievement for child trust funds – as along the way they have encouraged some 1.4 million parents, family and friends to contribute in excess of £22m every month to their children’s accounts.

The child trust fund is playing a crucial role in helping tomorrow’s 18 year olds to enter adulthood with a tangible asset which will offer them real choice, something that sadly is not always available to today’s young adults.

And it will make a real difference.  Currently, our customers who do save are saving an average of £24 a month into a child trust fund, which could see their child benefiting from some £9,000 when they reach 18.  And families who work together to save the maximum amount of £100 a month could have a fund worth £37,000 for their child when they reach 18.  This money could play a significant part in meeting some of the large costs of achieving their adult aspirations - such as university, a deposit for a first home or getting married.

The child trust fund is the UK’s most successful savings scheme ever and whilst every child gets one the active engagement of parents is the real success - nearly 75 per cent of them proactively invest their child’s voucher with a provider of their choice. 

To put this into perspective just 40 per cent of the adult population has a private pension and only 30 per cent of those eligible have an ISA despite huge tax incentives to save.  Our research has revealed that a further 10% of parents actively choose not to open an account and to let the government do so on their behalf – mostly citing lack of familiarity with financial matters as the reason for their decision.  Crucially, however, 100% of eligible children get a child trust fund and the opportunities it brings as the government ultimately opens an account for every child. 

Parents of young children are clearly committed to saving for their futures and realise that saving modest amounts regularly over the long term is one of the best ways to avoid the need to find a significant lump sum amount in the years to come, when their adult children need money to progress.

As always during a General Election year there can be all sorts of speculation around what different parties may or may not do should they come into power.  We are confident that both of the main political parties will continue to value the importance of long-term saving for children and share our view that future generations should be helped to see saving as the heart of their financial planning and not penalised for the debt that older generations have acquired.

What we do know for certain is that child trust funds have a significant role to play in the future of our children and the UK as a whole.  We estimate that £2.74 billion will collectively be available to young child trust fund holding adults each year as they turn 18 – a significant sum that could go a considerable way towards avoiding the crushing financial pressure felt by today’s emerging adults and their families.’