For soon to be parents or parents of children born after September the first 2002 Child Trust Funds are something it's worthwhile getting acquainted with. In case you're not already aware of them CTFs are part of a new government scheme that will see every child awarded ?250 (or ?500 for low income families) to be invested until the child turns 18 at which point they (and only they) will be able to access it.
Alone this is unlikely to result in a particularly massive pay out (the full ?500 would be worth ?1,410 based on an estimated 7% growth) but family and friends will be allowed to add up to ?1,200 a year in additional investment. Any income arising from these contributions will be tax free. There is certainly the potential then to generate a decent sized sum. The scheme should therefore open up the possibility of building significant savings for their child to a wider demographic than might previously have been the case. Far more children will in theory now be able to make use of a handy lump sum that could be put towards university fees or a first car, anything they want in fact.
CTF's are designed to be as simple and transparent as possible for parents. First up a voucher will arrive from the government, there's no responsibility placed on the parent to make an application. It's then down to you to decide how you want to invest it although there will be limitations ? nothing too high risk essentially. Even if you fail to invest after a year HM Revenue and customs will do it for you, after which point parents are free to assume responsibility for the account. In addition the government will even contribute another ?250 (again, twice as much for low income families) when the child reaches the age of 7.
Aside from being a useful savings tool for future generations and especially those children who may not otherwise have had anything set aside it's also being plugged as a scheme aimed at financial education. Giving kids a potentially valuable experience of real money management seems to have been one of the key motivations behind the idea with children set to receive relevant financial advice and education leading up to the point at which they are permitted access to the money. Perhaps the aim is to help go someway towards instilling a saving habit that might counterbalance an increasingly ?buy now, forget about the consequences' culture.
