As Child Trust Funds (CTFs) start to mature, children turning 18 are loving receiving their windfalls. The next generation of under 10s though are set to miss out as parents are put off opening Junior ISAs by their complexity, poor returns and / or high fees.
The Child Trust Fund “winners”
As part of an initiative to encourage parents to save for their children’s future, the Government gave every child born between 1st September 2002 and 2nd January 2011 a voucher (typically £250 in value) which had to be used to open a child trust fund, a long-term savings and investment account which could not be accessed by the child until they turned 18. Many parents topped up the accounts so that, with growth, CTFs vary enormously in value from a few hundred pounds to a lucky few with £15,000+.
The first group of the ‘CTF generation’ are starting to receive the money as they turn 18 and it is clear from their reaction that they are loving it.
Livy C from London is studying for her A levels and turned 18 in December:
“I was so excited to find that I had over £1,000 coming to me and I am using it to buy a new laptop for when I hopefully start university. My friend Ollie received £1,450 and feeling a bit crushed by lockdown used his windfall to buy a whole range of weights and dumbbells to help stay fit!”
Clare, Livy’s mum, said:
“We’d topped up Livy’s CTF voucher with money back on shopping at KidStart and I was really pleasantly surprised to see how much Livy had. It was great to see her smile when she found out!”
Kara E turns 18 in May and is hoping to receive over £10,000 after her parents put in a regular monthly contribution of £30.
“I don’t want to build up too much debt at college, so it is really going to come in handy at paying for my living costs. It was so nice to find out that I have it coming – it’s a weight off my mind (and I suspect my parents’!) knowing that I can start college life with a financial cushion.”
The JISA generation “losers”
The CTF was abolished at the start of 2011 and since then parents have been able to open Junior ISAs. However, of the 720,000 children born each year in the UK, only about 15% have a Junior ISA meaning that 600,000 children a year are set to miss out on the financial head-start in life that the current ‘CTF generation’ is enjoying.
The products that are out there are not helping. Many stocks and share JISA providers target wealthier families with complex products with minimum contributions. Fees are often relatively high and opening an account can be a confusing process putting off many parents.
Cash isn’t necessarily king for JISAs
Even when they do open a JISA, two thirds of parents put the money into a cash JISA because it seems easier and safer. At a time when interest rates are rock bottom the return is barely much better than hiding it under the cot bed mattress and is not necessarily the best option for an 18-year product. Over this length of time history suggests that returns on stocks and shares are likely to be higher than cash even with the ups and downs of the market.
As witnessed by the CTF generation, even a small amount at 18 can make a difference and it is not that hard to achieve. If the value of an account grows at 5% per year, putting just £2.90 aside a month – the price of a large cappuccino – will result in a pot of £1000 when they are 18. £30 a month will give over £10,000.
Beanstalk – a Different Approach
Helping the 600,000 children a year missing out requires a different approach – one that suits families’ individual financial situations. Families want to invest in their child’s future – but they cannot necessarily afford to commit to a minimum monthly payment. They need flexibility, both in what they can save, and in how they can save it.
Research among families with Beanstalk JISAs has revealed that over half (54%) are using ad hoc and flexible contribution methods such as top-ups, round ups and money back on their shopping through KidStart. For these families, it means they can build a long-term nest-egg for their children in a way that works for them.
In practice, this means they can earn money from their everyday shopping with KidStart so that everything from their monthly energy bill to their family holiday is helping them save for their children’s future. It means that when they make even the smallest contactless payment, they can choose to round-up their spending so that when they buy a takeaway coffee or a fill the car with petrol they can put a little bit away for their children’s savings.
It also means that with ad hoc top-ups, it is easy not only to put birthday present money into their long-term savings, but that families and friends can also pay in – replacing the old-fashioned cash-in-a-card with a meaningful contribution to their loved ones’ financial future.
Financial services providers have failed to deliver products that help families and their children for too long. Hamstrung by outdated systems and a lack of understanding of families’ interrelated financial needs, too many products simply are not suitable or relevant for the majority of households.
Beanstalk is tackling this head on, bringing fintech to family savings and helping parents and families build their long-term child savings. The Beanstalk app is available for download for Apple and Android devices and lets you set-up and manage all your family’s Junior ISAs in one place.