Child Trust Funds
What are they?
A tax-free type of savings and investment account introduced by the Government, whereby parents and other adults can save for a child’s future.
Child Trust Funds can be opened for children born on or after September 1st, 2002. They’re meant to teach children about the value of saving money – as well as launching them into adult life with a lump sum.
The Government gives parents of eligible children a £250 voucher to start the account, after they start receiving child benefit for that child. Children in households that get Child Tax Credit and have less than £14,155 coming in get an extra £250. And when the child turns seven, there’s another £250, or £500 in low-income households.
There’s no tax on any interest or investment returns in a Child Trust Fund, and anyone can put money into it, including the child themselves as they get older.
At 18 the child can get at the money, and use it however they please. Of course, the hope is that they’ll use it for something constructive, such as a training course, a deposit on a flat, a car or a computer.
Teaching children about money
Giving your child pocket money at an early age will set them on the road to managing their own money well.
- Make it clear that this is their money. Resist telling them how to spend it; friendly guidance is fine, but let them make the ultimate decision where possible.
- Make sure the amount you give keeps up with their age and needs, but don’t be too influenced by how much other children are getting – or what your child says they’re getting!
- Encourage them to put some money away as longer-term savings, by setting a goal and something they might like the money for (say, spending money on holiday). Don’t make the goal too far off. Offer to match their savings.
- Let them earn money for jobs around the house, to show them the value of it.
Set an example
Children will base their attitude to money far more on your actions than anything you tell them. Show them that you can enjoy money by buying treats on days out, for example, but also mention it when you are choosing not to buy so you can save for some later event.
The Personal Finance Education Group charity suggests some activities you can do with your children to teach them about money.
Making a will
If you have children, it’s important to make a will so your money and assets will be divided in the best possible way when you die. If you were to die while they were still young, for example, the money would need to be held in trust for them until they were adult. Find a solicitor through the Law Society.
The content of this article is intended for general information and personal use only. Nothing in this article should be construed as advice under the Financial Services and Markets Act 2000.
©2008 Rachel’s Guide to Money