Child Trust Funds Help Children to Start off Life Debt Free

One of a parent’s biggest concerns, aside from nurturing and protecting their child, is to financially provide for them. Indeed, from the time they’re born until they become independent, children rely on their parents for everything from food and clothing to spending money. Unfortunately for the parents, this doesn’t come cheap. In fact, research has revealed that the average cost of raising a child to the age of 21 is a staggering £180,000.

In addition to requiring money when they’re living at home, children also need financial support when they reach adulthood in order to continue studying, for example, or buy a new house. However, with many families lacking disposable income, it can be hard to afford the essentials, let alone such things as further education or property.

At the same time, no parent wants to deprive their child of an independent life, or see them in debt. That’s why, according to the experts, planning for your child’s financial future when they’re young can help them to have the best start in life when they leave home.

Having started in 2002, the UK Government introduced a child trust fund initiative with the aim of helping parents do just this. Under the scheme, every UK child receives a £250 child trust fund voucher – if you’re from a low income family then you’ll get £500 – which is to be put into a child trust fund. When the child reaches seven years of age, a further payment of £250 or £500 is made.

Basically, a child trust fund is a savings account that parents, relatives or friends can pay money into for a child, on top of the initial government payment. A maximum of £100 per month or £1200 per year can be paid in, which should then accumulate value until the child reaches the age of 18: until this point, they cannot gain access to the account and no one else is permitted to withdraw money from it.

Generally speaking, there are three types of child trust fund accounts: savings accounts, accounts that invest in shares and stakeholder accounts. A savings account will see any money in the account earn interest over the period of its life. Conversely, an account that invests in shares will use the money to buy a stake in a company, which means that if the company does well, the value of the shares go up.

A stakeholder account also buys shares, but instead of investing in one company, it spreads the money across a number of different ones. If you don’t use your child trust fund voucher before its expiry date, HM Revenue and Customs will open up this type of account for your child.

There are a number of benefits to be had from each of the accounts, as well as a wealth of providers to choose from. Therefore, the best thing you can do to ensure you find the best account for your child is research what’s available and find one you’re comfortable with.

Jonathan Wallace writes for a digital marketing agency. This article has been commissioned by a client of said agency. This article is not designed to promote, but should be considered professional content.

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