What should Child Trust Fund kids do with their money?


The first Child Trust Fund children have come into their money this month, as they turn 18.

But what should they be doing with their new-found wealth? 

While the majority of investments will be barely more than the £250 or £500 that was given initially by the government in 2005, some diligent parents and guardians will have been adding to the pot over the years. 

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As a result, some youngsters will find themselves in possession of four or even five-figure sums of money, which is a huge responsibility. 

What to do with it, therefore, is a big question. While some teenagers may well be profligate, the vast majority will be looking to make their money work for them, perhaps to pay off student debt or help with their apprenticeships or even saving it for a house purchase further down the line. 

How they choose to invest it, and what options are available to them, are other questions entirely, especially considering the lack of financial education, a panel told the latest FTAdviser podcast. 

Cash might be the first port of call for its low - or no - charges and the flexibility that most savings plans offer. But this also exposes young people to the ravaging effects of inflation.

However, investing into stocks and shares can be a minefield, and there are always charges to consider.

Analysis by Vanguard showed investing £1,000 for 10 years in an investment generating 5 per cent a year, but charging 2% (1.5% AMC plus platform fee), the return will be £2,135.

But £1,000 in an investment generating 5 per cent and charging 0.37 per cent (LifeStrat plus UKPI platform fee) would see the young person gain £2,512.

So evidently education is critical, as Vanessa Howard from Good with Words, who is an adviser to EQi on CTFs, commented. 

She said: "Young people understand the value of money but the biggest issue they face is wanting to take some money now, but knowing they have to put some money aside if they want to be homeowners or to afford a decent retirement.

"And they are not confident about which way to turn."

Claire Walsh, head of advice strategy at Schroders Personal Wealth, agreed some children may have an idea about what to do with their money, but said more widely, young people did not have the financial skills necessary to manage their money.

She told FTAdviser there was a need to learn more about budgeting and managing debt and young people needed to know how to make money work for them and have financial education skills taught from an early age, because "suddenly you're 18 and you have taken on debt". 

Fellow panellist Nick Britton, head of intermediary communications at the Association of Investment Companies, said: "I can imagine a lot of 18-year-olds will be hungry for information."

Indeed, he said the very question of 'investing' and whether young people even knew what that decision might entail, was a big one and not many 18-year-olds would know what that meant.