A report by the public accounts committee, published yesterday (July 26), said large amounts of the money is likely to have been forgotten and that HM Revenue and Customs should increase efforts to give the moeny to account holders.
The government invested £2bn into child trust funds, which are tax-free savings accounts, with the aim of giving young people a pot of money when they reach 18.
They were set up for children born between September 2002 and January 2011. The latest figures showed 42 per cent of 18 to 20-year-olds had not claimed their savings, with an average value of around £1,900 each.
The report said HMRC should do more to find and contact young people who have not claimed their savings.
Half of all the child trust funds, around 887,000, were for children from low income families.
The report went on to say the objectives of the scheme, to support the financial education of children and improve financial literacy, have not been achieved.
It stated: "HM Treasury has not given HMRC dedicated funding for the scheme, nor supported it to do more with child trust funds. We are concerned that child trust funds will become another example of a legacy financial product that is not given the necessary attention by government to succeed against its aims over the long term.”
The report also found that while providers are charging fees for passively managing the funds, just four of the 55 providers had actively worked with a commercial tracing service to actively link the account with young people.
Overall, the providers could be earning up to £100mn a year through the funds.
Dame Meg Hillier MP, committee chair, said while the aims of the scheme were “laudable”, schemes like these need careful planning so they are not forgotten when they come to an end.
She said: “Our inquiry heard a world of difference can be made to care leavers in particular, with funds acting as a jump-start into adult life. In an ongoing cost of living crisis, our young people need every bit of support we can give them. HMRC still has time to make sure that child trust funds are given the chance to be the boost to young people’s futures which they were designed to be.”
HMRC said people can locate their accounts by using the 'find my CTF' page on gov.uk.
They added: "Every 16-year-old is sent information about finding their child trust fund with their national insurance letter. We also regularly remind people how to check if they have an account.
"The banks and building societies managing the funds are also responsible for communicating with account holders. We would encourage anyone unsure about their situation to get in touch with their bank or building society as well."
Andy Russell, chief executive of Wealthify, called the content of the report "concerning", particularly for young people who need the money the most.
It coincides with the investment service's first financial literacy benchmark assessment with the Centre for Economics and Business Research (CEBR) which found 16 and 17-year-olds lacked vital knowledge on day-to-day finance.
It plans to introduce free financial tools aimed at 16 to 18-year-olds this September which will include how to access a child trust fund.
Russell said: "The findings also show a clear association between exposure to monetary choices and levels of financial literacy, and suggest that earlier introduction to real-world financial decision-making, especially as they gain access to their child trust fund, could have a positive impact on young peoples’ long-term financial health."
The call for better financial education for young people was echoed by the Centre for Financial Capability.
Director of the CFC, Stewart Perry, said: "We need an urgent reform of financial education in this country, to ensure that everyone, particularly people from more disadvantaged backgrounds, have equal opportunities for financial wellbeing.
"The government must ensure that all young people, no matter their background, have access to effective and high-quality financial education, enabling them to confidently navigate financial services and boost their financial capability. Financial education must be urgently prioritised, to offer children a financially sound future.”
tara.o'connor@ft.com
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