"Sometimes parents worry what teenagers will do if they are given access to a significant sum of money at a relatively early age. The answer appears to be that most of them will continue to save it."
Twelve months on from the first 18-year-old holders of Child Trust Funds (CTFs) gaining access to their money the vast majority have chosen to keep their accounts invested, according to a leading provider of children’s savings and investments. Healthy Investment has reported that, of approximately 1,100 younger members who turned 18 between 1 September 2020 and 31 August 2021, more than 85 per cent have kept their funds invested with the historic friendly society.
CTFs were one of the flagship policies of the former Chancellor of the Exchequer Gordon Brown and were intended to help improve social mobility by giving all children a nest egg. The government issued CTF vouchers worth between £250 and £500 to the parents of children born in the UK between 1 September 2002 and 3 January 2011 (when they were discontinued), and many of these accounts have since been added to by parents and grandparents.
When a CTF matures on the holder’s 18th birthday the default position is for it to transfer into an adult ISA or, if the provider does not offer an ISA, into a tax-free matured CTF account, which is more limited in scope. CTFs held with Healthy Investment automatically transfer into a Healthy Investment All-Share ISA on the beneficiary’s 18th birthday, at which point beneficiaries can withdraw their money if they wish.
Healthy Investment is a major provider of CTFs, managing more than 90,000 of these accounts on behalf of younger members. Its chief executive, Peter Green, said, “Sometimes parents and grandparents worry about what teenagers will do if they are given access to a significant sum of money at a relatively early age.
“The answer appears to be that most of them will continue to save it, and in many cases add to it. I am really proud of our younger members, and look forward to continuing to be part of their financial journey as they move into adulthood.”
Healthy Investment has produced the following five tips to help younger investors make the transition from CTFs to a long-term financial strategy.
1. Put it away on pay day. When you start your first job get into the habit of putting a regular amount of money away into savings or investments on pay day, ideally by standing order. That way you won’t be tempted to spend it, and you won’t miss it because it will never have been part of your disposable income.
2. Think about your goals. What do you want to achieve over the next three, five and ten years? How much money will you need to help you achieve those goals, and what might this mean in terms of regular savings?
3. Is your money invested in the right place? If you need all your money for a specific purpose in a year or two’s time then you should probably keep it in a low-risk cash ISA, and accept that it won’t grow much. If you are investing for the longer term then a more volatile but potentially higher-yielding stocks and shares ISA might be appropriate. If you want some of the potential performance of stock market investing but aren’t comfortable with all the ups and downs that go with it then a cautiously managed with-profits fund could be worth considering.
4. What about your values? If you have a stocks and shares ISA, are you happy for it to invest in all types of company, or are there any activities you would prefer to avoid – or encourage? There are plenty of options out there, including the Healthy Investment Ethical With-Profits Fund, for investors who want their money to make the world a better place.
5. If you’re going to transfer between ISAs then always perform a formal transfer. Money in ISAs grows free of income tax and capital gains tax, but only for as long as you keep it in an ISA – and there is an annual limit (currently £20,000 per year for an adult) on the amount you can put in. Transfers from CTFs, or from other ISAs, don’t count toward this limit, but if you just take the money out of one ISA and try to open a new account with the cash then it will be subject to the annual limit and you might not be able to put it all into a new ISA straight away. Transferring between ISAs is easy to do, and the new provider will handle the process for you.
Healthy Investment is one of the oldest financial mutuals in the UK. It was founded as a friendly society in 1835 and today provides ISAs, Investment Bonds, Junior ISAs, Child Trust Funds and savings plans to more than 110,000 members.
The society was founded in Salford and has been based in Greater Manchester throughout its history. In 1917 it relocated its headquarters from Salford to Manchester City Centre and in 2007 moved into its current premises in the Greater Manchester town of Bury.