After 15 years, a $ 12 billion piggy bank is finally ready to be mugged.
British teenagers who turn 18 on Tuesday are receiving payouts from an experimental austerity program run as Tony Blair Prime Minister and Prime Minister Harry Potter and the Goblet of Fire was the world’s leading film.
The accounts, known as Child Trust Funds, have been set up by the state with initial grants ranging from £ 250 for children in affluent families to £ 500 for children in low-income households. They offer any person born in the UK between September 1, 2002 and January 1, 2011 a tax-free windfall to begin their adult life.
The 18-year-olds have access to account balances that range from £ 1,000 ($ 1,330) to £ 70,000, depending on how they have been managed, according to estimates by Moore Kingston Smith, a London-based accounting firm.
Could set a trend
By 2029, around 55,000 people will redeem their children’s trust funds every month. The program is designed to impact the financial lives of a generation of young Britons. Officials in other countries are watching similar initiatives as the economic turmoil sparked by the coronavirus crisis takes a fresh look at universal basic income and other forms of cash payments as social welfare. Last week, New Jersey Governor PhilMurphy proposed granting state-born children a US $ 1,000 state-funded nest egg.
The money is a welcome dose of good news in an otherwise dire year for British teenagers. Many high school aged students in the UK faced canceled school conditions and concerns about their future after a government plan to set graduation grades for graduates was mixed up in the pandemic.
While 529 accounts in the US have funding for college, Child Trust Fund holders can spend whatever they want.
“It’s pretty exciting, isn’t it?” Says Sasha Brealey, a London student who turns 18 on September 19. “I’m going to keep it in my savings account to pay for university and keep it as cash. I don’t know enough about the stock market, so I would probably do something pretty stupid if I invested it.”
If a child trust fund is left alone, it automatically turns into a custom savings account that is tax-free and currently has a 3.5 percent return, according to Hargreaves Lansdown. Sarah Coles, a personal financial analyst at the London-based investment firm, says the vast majority of younger savers tend to keep such accounts long after they are due. Still, long before it is time to make such a decision, she urges parents to talk to their teenagers about their savings.
“When young people understand how to invest, they get a good idea of long-term growth potential,” says Coles. “It can help create a sense that your money has worked hard for you, so you need to treat it with respect.”
The Child Trust Fund program, launched in 2005, was born out of an effort to give young people a material share in society and to eradicate inequality. Many conservatives have argued that the baby loan initiative is a universal government aid that would be a waste of money. Leftists disliked the role of the securities markets in the program and preferred cash benefits.