Child Trust Fund

A Child Trust Fund (CTF) is a long-term savings or investment account for children in the United Kingdom. New accounts cannot be created but existing accounts can receive new money: CTF new accounts were stopped in 2011 and replaced by Junior ISAs.

The UK Government introduced the Child Trust Fund with the aim of ensuring every child has savings at the age of 18, helping children get into the habit of saving whilst teaching them the benefits of saving and helping them understand personal finance. The Child Trust Fund scheme was promised in the Labour Party's 2001 election manifesto and launched in January 2005, with children born on or after 1 September 2002 eligible.

Eligible children received an initial subscription from the government in the form of a voucher for at least £250. In 2010/11 the child trust fund policy was expected to cost around £520m, less than 0.5% of the £84bn UK education budget. Because the scheme allows for family and friends to top up trust funds, it has given a substantial boost to savings rates, particularly among the poor. According to the Children's Mutual, "In terms of changing people's behaviour, this is the most successful product there's ever been." For households with income of £19,000 a year, 30% of the children in that category are having £19 a month saved for them. Part of this is due to grandparents being more willing to contribute to funds, since the money cannot be diverted to the family finances. Creation of new funds and Government payments into them were ended in January 2011 by the Savings Accounts and Health in Pregnancy Grant Act 2010.

Asset-based egalitarianism traces its roots to Thomas Paine, who proposed that every 21-year-old man and woman receive £15, financed from inheritance tax. In 1989 LSE professor Julian Le Grand proposed a similar idea, calling it a "poll grant". Subsequently the related concept of Individual Development Accounts was developed in the United States by Michael Sherraden. This approach - termed "asset-based welfare" by Sherraden - saw asset redistribution less as an egalitarian measure than as one which supported poverty reduction by encouraging saving. Sherraden argued that owning an asset led to people changing their way of thinking, being more likely to plan and invest in their future - in a way that providing people with an equivalent flow of income does not. The idea of a universal account for all children first appears in Sherraden's Assets and the Poor (1991).

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