Imagine that you are about to turn 18 and there is £2,000 sitting in a bank account on your birthday. What would you do with it? Spend it on a laptop, clothes for work or save it for a rainy day? But there’s a catch: you don’t know the money is there and so you do not get it.
This may be the case for thousands of young people today. The latest data on child trust funds (CTFs) up to April 2022 shows that there is £943m in matured CTFs lying unclaimed or untransferred.
CTFs were introduced by a Labour government in 2002. All babies in the UK born between 1 September 2002 and 2 January 2011 received an endowment of £250 (or £50 if they were born from August 2010) from the government into an 18-year account. Children from a low-income background received an extra £250. Family and friends could save up to £1,200 a year and once the account matured, when the person turned 18, they could use the money however they pleased. The policy was axed in 2011 by the Conservative-Liberal Democrat coalition government in its first wave of austerity cuts to public spending.
The child trust fund succeeded in ensuring children born between 2002 and 2010 all have some money. This should be set against a background where large parts of the population have little or no savings. Research from the Money & Pensions Service shows that nine million people, or one in six UK adults, have no savings at all.
Official figures show that as of April 2022, the average market value of CTFs was just over £2,000. Having £2,000 at 18 years old is certainly a useful foundation for later life. There were debates about whether young people would blow the money on wild parties. But the young people I interviewed at the time were more likely to say that they would use the money to spend on things such as driving lessons, which could help them with a job. If this policy was such a success in saving money, why has it failed to deliver these funds into the hands of so many young people?
When the CTF was first introduced there was a debate about whether these grants should be paid at birth or when the person turned 18. Providing it at birth resonated with those who wanted a basic capital and it may have been easier to communicate. But those who wanted to use the grant to help young people build a savings habit over the 18 years of the account prevailed.
Providing money to 18-year-olds may have been more politically palatable, but it also stored up challenges for the policy. Its axing in 2010 meant that opportunities for the government to nudge young people to engage with their accounts were lost.
Steps have already been taken to help young people locate their CTF. HMRC has had an online tool since 2013 allowing young people to check whether they have a CTF. In 2019, HMRC began to notify 15-year-olds that they might have a CTF in the letter it sends to teenagers notifying them of their national insurance number as they approach 16 years of age. The Share Foundation is a charity that manages CTFs for young people who are, or have been, in local authority care and also has an online search tool. However, the large number of unclaimed accounts suggests that more may need to be done to reach young people.
Furthermore, if a parent or guardian did not open a CTF, then the government opened an account on the child’s behalf. These are known as stakeholder accounts that invest in stocks and shares, and providers charge fees to run these accounts. A member of the current Commons public accounts committee inquiry into child trust funds has asked if some providers have much incentive in reconnecting young people to unclaimed accounts as providers still receive fees for running them regardless.
Providing people with extra money is often touted as a response to cost-of-living challenges. It is usually hard politically to get agreement to do this. But in the case of the CTF, the money is already sitting there and much of it is untouched – the government just needs to find a way to reconnect young people with their cash.
Dr Rajiv Prabhakar is a senior lecturer at the Open University and author of Financial Inclusion: Critique and Alternatives
