- An average of 70% of 16-18 year olds see a sum of money up to £20,000 for spending and not investing
- Property message getting through to young people as 27% would use a large lump sum for a deposit on a first home
- Only 4% of young people would seek the advice of their parents if they received a large lump sum
- Almost a quarter of young people would use their Child Trust Fund to travel the world for a year, but only if they received more than £5000
New research undertaken by Albannach Financial Management (1) uncovers a basic shortcoming in the Government’s Child Trust Fund (CTF). Although the aim of the CTF is to provide 18 year olds with a ‘nest egg’ to be invested in their future, Albannach’s research has found that an average of 70% of a cross section of Scottish 16-18 yr olds questioned see any amount of less than £20,000 as disposable rather than for investment.
According to the survey, the most popular use for £500 was for socialising or visiting the shops (2) – a much shorter term benefit than was ever intended for these funds. Even when asked what they would do with £5,000, less than a third (30%) stated they would invest it in their future.
Jason Hemmings, a director with Albannach Financial Management, commented, “The results clearly show that, when talking to the ‘end user’, the Child Trust Funds will not have the desired effect the Government is planning for. The children surveyed would rather fritter away the funds through socialising and shopping instead of using the money to help with education, property or simply to invest in their future. Even £500 has the potential to make a significant contribution to further education through, for example, the purchase of a laptop or course books – but our research makes it obvious that this is not how children see that amount of money.”
However, Albannach’s survey also showed that, when asked what they would do if they received a significantly larger pot of £20,000, over half (56%) of the children said they would invest the money for their future. This indicates that only when it gets to a large sum such as £20,000 will children use the money for the Government’s intended purpose.
Jason Hemmings continued, “The pivotal point around the £20,000 mark where children’s perception of how useful the lump sum is, shows how important it is that parents are educated about the CTF and are encouraged to contribute additional funds. However, the incredible finding that only 4% of today’s children would go to their parents for advice regarding a large sum of money, painfully highlights the need for parents to not only contribute to their child’s fund, but also be more financially aware themselves so they can provide guidance.
“Children should be taught from a young age to plan for the life they want to lead when they leave school. If a significant amount of money is saved then the children will have a financial head start in life, and prospects such as starting their own business, going to university or even buying their own home won’t just be a fantasy.”
The research also revealed that today’s children are already keenly aware of the difficulty of getting onto the property ladder, and are conscious of the fact that a decent deposit is a necessity. Almost a third (27%) said they would invest £20,000 as a deposit on a first home –a significant jump from only just over one in 10 (3) who viewed £5,000 as any use for a house deposit.
NOTES
Albannach Financial Management is one of the largest independent financial advisors in Scotland with over 30 staff and offices in the heart of Edinburgh and Glasgow's financial districts, as well as Galashiels. Established in 2000, the firm provides a range of financial services to both individuals and Small and Medium-sized Enterprises (SMEs).
(1). Albannach Financial Management survey of 120 16-18 year olds (October 2007), who were asked to imagine that they had a Child Trust Fund and would receive either:
- £500: the minimum a Child Trust Fund (CTF) should have on fruition
- £5,000: a CTF with some additional investment, or
- £20,000: approximating the maximum a child could receive based on £1,200 (the maximum that can be invested per annum over and above the government's investment) being invested additionally each year.
(2). 60% of respondents stated that if they received a lump sum of money on their 18th birthday, they would spend the money going out, socialising and shopping.
(3). 13% of respondents would put £5,000 aside for a deposit on a home.
Child Trust Funds
In general, the Government gives children born on or after 1 September 2002 a voucher for £250 to start their account, and a further £250 when the child turns seven. A maximum of £1200 a year can be saved in the account by parents, family or friends. However, if no additional monies are invested in the account, the child will have a minimum of £500 when the funds are released on their 18th birthday.