Child Trust Fund top-ups at age seven critical for financial education

The London School of Economics today publishes Generation CTF: A Child’s Eye View, in what is a landmark month for an entire generation of children. From this month, every seven year-old in the country will receive the first ever tranche of CTF top-ups over the next year, adding to a total fund that could be worth as much as £6.7 billion in total by the time each of them reaches the age of 18 in 2020.

For the first time, the report examines the level of awareness, understanding and ambitions of children aged between seven and fifteen years when it comes to Child Trust Funds and the ways in which they want to learn and stay informed about money.

The report has been commissioned by O2 Money to better understand how parents, teachers, corporate organisations and stakeholders can ensure that they maximise personal finance learning opportunities for young people.

Crucially, the study reveals that although all children prefer to learn money lessons from Mum and Dad, this tendency begins to drop off after the age of seven when friends and other influencers become more important. Primary research conducted for the report demonstrates that 95 per cent of seven to ten year-olds prefer to learn about money from their parents, but this drops to 85 per cent among the eleven to fifteen year-old age group. Importantly, this means that seven year-olds are more susceptible to the messages of money management than older children.

The message for parents is clear: Child Trust Fund top-ups represent an important window of opportunity for parents to communicate money messages and use the child’s CTF as a catalyst with which to approach this.

If stake-blowing (wasting cash on non-investments) reaches the level among CTF that the children themselves predict (10 per cent claim they would spend their windfall on simply ‘having fun’) it suggests there could be much to do before 2020 to help empower young people to make the kind of financial choices that will support them through life.

One opportunity for bringing these messages to life is also highlighted by the research, which shows that 40 per cent of older children (aged between eleven and fifteen years) are keen to learn more about money from technology such as podcasts, mobile phones, social networks and through their PCs at home.

Dr Prabhakar, the report’s author comments, ‘It is widely accepted that technology is a significant hobby of children in the modern world. As we move into an increasingly digital age, it stands to reason that they would be interested in learning about money in this way.

‘Furthermore, each of us interacts with money in increasingly technological ways thanks to advancements like online and contactless payments. Basic money lessons are essential without doubt, but as children get older, the opportunity to interact with ‘real life’ money management technology is likely to increase confidence and capability when it comes to adulthood.’

Fraser Campbell, Head of O2 Money, comments ‘This report highlights the important role parents have to play in educating their children about managing money, and that the CTF top-ups represent an ideal starting point for this. As their children grow older and their financial needs evolve we believe that Load & Go can play an important role for parents in introducing their children to cash cards.’

O2 Money is new financial services offering from O2, delivered through a partnership with NatWest. The Load & Go card is specifically designed to give teenagers (13-18) a safe framework in which to gain experience in using a cash card. You can’t spend more than has been loaded onto the card, you get free real time balance alerts to your mobile every time you load, spend or withdraw money and it is blocked from use at retailers categorized as selling over 18 products.

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[1] Figures released from The Children’s Mutual reveal that their customers save an average of £24 a month into their CTFs, and this could mean that a young person could hold a fund worth £9,750 at 18). Figures from the Office for National Statistics predicts that there will be a 687,000 young people aged 18 in 2020. If each of these young people has a pot worth £9,750 at 18, then the CTF collectively would be worth 687,000*£9,750 = £6,698.25 billion (£6.7billion).