What caught my eye this week.
Remember Child Trust Funds, the more generous precursor of the Junior ISA?
I wouldn’t blame you for forgetting. Those halcyon days of 2005 when Gordon Brown felt able to hand the parents of three-year old children £500 towards their future almost feels like science-fiction now, post the financial crisis, post-austerity, post-Brexit, and mid-pandemic.
Nevertheless hand parents £500 to tax efficiently invest for their kids Brown did. And with the first Child Trust Fund (CTF) recipients turning 18 this year, next month will see small fortunes unlocked across the land.
Indeed the investment platform EQi says that while its average client’s CTF balance is £6,500, a few lucky mini-moguls are sitting on CTFs worth £200,000!
Parents could have topped up that initial £500 from the government with a massive £55,000 over the years, and presumably some did to generate these six-figure fortunes.
Either that or we have some new mini-Buffetts coming up…
The kids are alright
The average account is of course much smaller – there are an estimated 6.3 million CTFs in existence, holding perhaps £6bn in total. Of these EQi reckons 420,000 are about to mature, which sees the kids gain control of the purse strings.
No doubt second hand car salesmen, guitar vendors, nail salon owners, and lululemon store managers are all licking their lips at an imminent windfall.
But it’s worth stressing to any suddenly-minted teens within earshot that you don’t need to spend the money just because you’re 18.
A CTF automatically becomes a standard tax-free ISA at 18. And unless they’re spending the money on a house deposit or perhaps on education, that’s what most should do. Young people are already plenty rich without throwing money at them.
Maybe sit them in front of a compound interest calculator? Even EQi’s middling £6,500 balance could be worth over a quarter of a million pounds by the time a child reaches 65 – if left to compound tax-free with an assumed growth rate of 8%.
A kid with £25,000 or so in their CTF could in theory have a shot at becoming a (nominal) millionaire pensioner without saving another penny!
Of course, kids are kids. Heck, many adults are kids. Most of the money – an estimated £2.4bn this year alone, according to EQi – will probably be spent without too much soul searching.
But if you are blessed with a child who will read the Financial Times with you1, then do peruse its take on how to deal with this good problem to have. At the least, as the article warns, don’t even think about protecting little Jonny or Jemima from themselves:
For any parents thinking of not telling their children about their investment pot, Tim Stovold, head of tax at Moore Kingston Smith, notes:
“Parents planning not to pass on the good news until their teenagers hit the sensible years should be aware that HMRC has provided a tool to allow children to check whether a nest egg awaits them — even if their parents don’t tell them.”
Have a great (wet and chilly) bank holiday weekend.
Are your kids (or you) in the money on the back of a maturing CTF? Share your plans for the loot in the comments below.
[*wind rustles through the trees*]
From the archive-ator: 10 lessons learned from accidentally starting a business – Monevator
Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!2
US Fed relaxes inflation target in policy shift – BBC
Eat Out to Help Out drives UK economic recovery in August – Guardian
Global dividends suffer worst quarterly fall since 2009 [Search result] – FT
UK housing demand soars since end of lockdown – Guardian
Triple-lock on state pension increases could be curbed – ThisIsMoney
UK ‘lifeboat’ scheme for company pensions at risk, says former minister – Guardian
Citi’s $900 million loan error is still perplexing – Bloomberg
Gold fever in 2020 means exchanged-traded funds – Bloomberg via MSN Money
Products and services
Smart meter rollout falls further behind target due to the coronavirus – ThisIsMoney
Is it worth fixing your mortgage for 7-10 years for a 90% loan-to-value loan? – ThisIsMoney
How is coronavirus affecting house prices? – Which
Sign-up to Freetrade via my link and we can both get a free share worth between £3 and £200 – Freetrade
Which restaurants will offer Eat Out to Help Out discounts in September? – Which
Homes for sale in converted farm buildings [Gallery] – Guardian
Comment and opinion
On the other hand… – Creative Planning
The timing mistake: Thoughts and pushback – Barry Ritholz
We need to do better at predicting the end (of retirement) – Morningstar
How to become a millionaire by investing £10 a day [Video] – Humble Penny via YouTube
Pile right in, or little by little? – The Financial Bodyguard
Portfolio checkup – Humble Dollar
Socially Responsible Investing: Is it also more profitable? – Mr Money Mustache
Risk and return are not evenly distributed – A Wealth of Common Sense
In the eye of the beholder – Of Dollars and Data
Alternative forms of wealth – Morgan Housel
Bad luck if you held risk premia/factors in your portfolio in recent years – Factor Research
Naughty corner: Active antics
John Kay: A lifetime in investment trusts [Search result] – FT
Busting the myth that active funds to better in bear markets – Morningstar
How risky are value stocks? – Factor Research
Sweden claims herd immunity is working and country won’t suffer second wave – Metro
Two patients were infected twice with the coronavirus, say virologists – CNN
UK sees highest number of cases since mid-June, but hospital cases still low – Guardian
‘Vanishingly small’ risk from Covid for children, study finds – Guardian
Chris Whitty: Missing school is worse for children than virus – BBC
Reopening schools: How different countries are tackling the dilemma – Guardian
In the US a new era of Covid-19 testing is about the begin – The Atlantic
Leaked document reveals Cabinet’s emergency plans for ‘perfect storm of No Deal Brexit and coronavirus second wave’ – The Sun
White House, petri dish – The Atlantic
Kindle book bargains
Captivate: The Science Of Succeeding With People by Vanessa van Edwards – £0.99 on Kindle
Talk Like TED: 9 Public Speaking Secrets by Carmine Gallo – £0.99 on Kindle
Super Thinking by Gabriel Weinberg and Lauren McCann – £0.99 on Kindle
Siege: Trump Under Fire by Michael Wolff – £0.99 on Kindle
Off our beat
How Jeff Bezos does $10,000/hour work – RadReads
Blockchain: The amazing solution for almost nothing – The Correspondent
“FI gives you the power to decide. It allows you to use your money as a tool to live a rich life, freeing yourself from the need to go to a job.”
– Chris Mamula, ChooseFI: Your Blueprint to Financial Independence
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