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Weekend reading: Child Trust Funds coming of age

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What caught my eye this week.

Time flies. Great if you’re compounding interest. Less so if you’re contemplating a receding hairline.

As I’ve remained determinedly childless, I’ve not had to suffer the ignominy of seeing my own offspring grow up faster than you can say: “No I won’t pick you up from the bloody nightclub at 2am”.

Sure, I get the odd shiver of recognition – the close friends’ eldest who just got into his preferred university, an early girlfriend who appears on Facebook with what seems to be a time-traveling clone but turns out to be her daughter.

But mostly, I can delude myself that I’m perpetually playing about in my early 30s in peace.

However this week a messenger of mortality got through my defenses in the form of a press release stating that the first children to get Child Trust Funds will be 16 in September.

There now begins a period of 11 years during which the estimated six million children who benefited from these largely Government-funded accounts begin to see what they’ve won.

At 16, a child can take control of their account. At 18, they can access their money.

Ladies and gentleman, place your bets!

The Lost Boys and Gone Away Girls

While a lucky handful of Child Trust Fund owners have Monevator readers for parents and will have benefited both from good stewardship of their money to-date and perhaps further family contributions, most kids are not so lucky.

Indeed of the more than six-million accounts opened, 1.74 million were opened by HMRC within a year of the birth of a child, because their parents hadn’t done so.

Worse, 34% of these accounts are now marked ‘Addressee Gone Away’.

The Share Foundation charity says this amounts to £0.75 billion stranded in 440,000 lost accounts, the vast majority of which are notionally owned by likely economically disadvantaged – and now lost to the system – children. The charity has made proposals to the Government as to how it can address this situation in the November budget.

I liked the universal Child Trust Fund scheme, despite problems like these. It was progressive, with everyone getting at least a taste of the life of a saver. If Child Trust Funds had become a permanent feature of the savings landscape, they might have taught  a few thousand more children the value of saving. Of course, like all universal benefits it was a bung to the better-off, but that’s easily fixed with taxation. (I’d prefer my tax contribution went on teaching kids patience rather than paying for a middle-class family’s mini-break, which universal child benefit once did for some of the well-to-do).

Alas Child Trust Funds were chopped, changed, dropped. And while many Monevator readers – and most of my friends – put money into JISAs and even open pensions for their loved and lucky children, the Government top-ups for everyone stopped in 2011.

Do you know someone who might have forgotten their child has a tiny Trust Fund tucked away somewhere? Could be worth prodding them.

From Monevator

How to get a 14% return from RateSetterMonevator

From the archive-ator: Income units versus accumulation units – what difference does it make? – Monevator

News

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!1

Government’s ‘care Isa’ plan dismissed by Tory health committee chair  – Guardian

Buy-to-let will decline for another three years, says report – ThisIsMoney

Nearly half of tenants who make complaint face ‘revenge eviction’ – Guardian

Property asking prices slump £7k in a month – ThisIsMoney

After the Bitcoin boom: Hard lessons for cryptocurrency investors – New York Times

Half of Britain’s bank branches will be ‘closed within five years’ warns former Barclays boss – ThisIsMoney

Investors set to benefit from global dividend haul [Search result]FT

Products and services

Investors with failed broker Beaufort get a lifeline to keep their money safe – ThisIsMoney

Monzo plans to crowdfund £20m as it chases coveted £1bn ‘unicorn’ status – City AM

The cunning new tactic crooks are using to raid your bank account – ThisIsMoney

Look, no beard: Goldman Sachs’ Marcus subverts the fintech story – Guardian

Testy testosterone? Get 50% off your first Thriva blood work with this affiliate link – Thriva

Top income-earning investments trusts – ThisIsMoney

How can two vastly different sized pension pots have the same transfer value? – ThisIsMoney

Comment and opinion

When cash was king – Young FI Guy

Zero-fee investing won’t make you a successful investor [Canadian but relevant]Canadian Couch Potato

Swedroe: Manager skill exists, but not enough to cover costs – ETF.com

EIS investing: From algae to tiny spacecraft — the world of wacky investments [Search result]FT

Invoking Adam Smith to justify active management is scraping the barrel – T.E.B.I.

Buying emerging markets during a disaster – A Wealth of Common Sense

The Strangely deep-value story at the heart of the Marvel empire – The Value Perspective

Tench detecting – SexHealthMoneyDeath

Change is difficult – Abnormal Returns

Early retirement doesn’t have to suck – Physician on FIRE

Fake news, investor attention, and market reaction [Research]SSRN

Kindle book bargains

Making a Success of Brexit and Reforming the EU by Roger Bootle – £0.99 on Kindle

Zero to One: Notes on Start Ups, or How to Build the Future by Peter Thiel – £1.99 on Kindle

Liar’s Poker: From the author of the Big Short by Michael Lewis – £0.99 on Kindle

Nudge: Improving Decisions About Health, Wealth and Happiness by Richard Thaler – £1.99 on Kindle

Brexit

Pick your own Brexit [Interactive game]Bloomberg

What the Government’s no-deal Brexit papers say about money and pensions – BBC

Hammond puts the no-deal Brexit bill at £80bn [PDF letter]UK Government

WTO warns on disruption to UK of no-deal Brexit [Search result]FT

From Catiline to Boris: The Roman lessons for Brexit Britain – Prospect

October no longer hard deadline for deal, hints Cabinet Office minister – Guardian

BLT will survive no-deal Brexit – but it is likely to cost you more – Guardian

Off our beat

The undertakers of Silicon Valley: how failure became big business – Guardian

Beware of bosses handing out crap sandwiches – Slate

Online shopping and cheap prices are turning Americans into hoarders – The Atlantic

Modern dating, the end of civilization, and so forth – via Twitter

Museum visitor falls into hole in the floor that looks like a cartoon-ish painting of a hole in the floor – Gizmodo

And finally…

“The big question about how people behave is whether they’ve got an Inner Scorecard or an Outer Scorecard. It helps if you can be satisfied with an Inner Scorecard. I always pose it this way. I say: ‘Lookit. Would you rather be the world’s greatest lover, but have everyone think you’re the world’s worst lover? Or would you rather be the world’s worst lover but have everyone think you’re the world’s greatest lover?’ Now, that’s an interesting question.”
– Warren Buffett, The Snowball

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{ 17 comments… add one }
  • 1 ermine August 25, 2018, 11:20 am

    Wonder how many of those CTFs are still ‘invested’ in cash, ‘cos cash is safe, unlike betting on the stock market, innit?

    If anything it’ll be an object lesson in the power of inflation, not quite halved over 18 years…

  • 2 dearieme August 25, 2018, 12:32 pm

    Some of the CTF-ers will presumably be persuaded by their bankers (M & D) to stick the money into LISAs when they’ve turned 18. Probably a good bet.

    My memory of trying to talk to sixteen year-olds about investment was their extreme risk-aversion. “I thought I might put a bit of money for you into the Taiwan Investment Trust.” “Noooooooo, daddy, it might lose money!”

    Now the same people are shrewd followers of market signals. “The monevator bloke has bought a house at last.” “Ah, that means the London market has peaked. We won’t trade up just yet.”

  • 3 Gentleman's Family Finances August 25, 2018, 1:57 pm

    Child trust funds – what a terrible way to spend tax payers money – and such a shame that my son doesn’t have one – boo hoo I can’t have my cake and eat it too!
    I suppose that like many government initiatives, it had good intentions but the hoi poloi didn’t know what to do with all that money. Meanwhile, for those parents who can’t game the system on tax credits, children’s allowance has not increased for almost a decade at a measely £20.70 a week for kid #1.

    Don’t worry about me – I plan to live off the ever rising dividends from the world (excluding the Brexit ravaged UK) – that trend of ever increasing dividends doesn’t look like it will every stop increasing!

  • 4 Factor August 25, 2018, 2:07 pm

    We (M & D) are divorced now but communicate amicably. Back in the married day, we set up a CTF for each of our currently still <16 daughter and son, with daughter's linked to D and son's to M; both funds remain 100% cash. Daughter will be first to 16 ere long but both she and son are high IQ, and have their feet firmly on the ground, so hopefully there are no parent/offspring battles ahead!

  • 5 Matthew August 25, 2018, 4:23 pm

    I feel cash shouldn’t have been an option to save people from themselves – the account wouldn’t be accessed for so long and fewer people would develop an affinity to stocks of cash was an easy option

    I feel encouraging people to save and invest makes them feel like they have a stake in society and business and makes them more right wing/ sympathetic to businesses, so politically it can convert people.
    Also that money will re-enter the economy to generate tax quite quickly, and what isn’t spent is saved or invested, providing liquidity, so long as it stays in the country

  • 6 xeny August 25, 2018, 5:57 pm

    If stocks had been the default, and the default managed to lose money (unlikely but not impossible) the fallout would have been so painful it almost certainly wouldn’t be contemplated from a political ramifications perspective.

  • 7 Algernond August 25, 2018, 8:16 pm

    Sprog’s CTF was 100% FTSE All-share from 2003 – April 2015 (mini peak!). Then we transferred it to 3.25% cash JISA – very fortunate timing.
    Would seem foolhardy to put back into Stocks/bonds now, until the 3.25% elapses at 18..

  • 8 The Borderer August 26, 2018, 1:43 am

    @Matthew (5) @TI
    “I feel encouraging people to save and invest makes them feel like they have a stake in society and business and makes them more right wing/ sympathetic to businesses, so politically it can convert people.”

    Political leanings have no place on this forum.

    Slap on wrist TI for not moderating this.

  • 9 Matthew August 26, 2018, 6:16 am

    @borderer
    Is it not allowed? If so I apologise but I just meant that there is political logic to why the political parties may/may not do something, I’m not intending to say if I think that’s good or bad, although you could call Brexit a political thing that gets discussed here, although it doesn’t come in left vs right form. Further, it’s possible for people to put political bias in without mentioning politics as such with the tone of writing or things said, as newspapers do. I could imagine it causing annoyance by deviating from topic of it became too much, would that be the primary objection?

  • 10 The Investor August 26, 2018, 9:36 am

    @Matthew @borderer — The rules of what goes on this site’s comments are more ambiguous than that, and as I’ve said before are essentially down to how I feel some particular day. If it helps think Emporer Nero with a delete button.

    Borderer is correct that I do get twitchy if things get too party political/ relentless/ offensively political — especially if the original topic was not political or if it drowns on the wider discussion. But I didn’t think that was the case here.

    Certainly, as the actress said to the Bishop, I’ve seen worse.

  • 11 Hari Seldon August 26, 2018, 11:44 am

    When “Cash Was King” link was interesting.

    Its worth noting the start date for this comparison was just a little before the Japanese stock market reached an all time high and subsequently crashed, the bubble in Japanese stocks was such that it was 40% or so of the all country index at that time, its around 8% now. The closing date for the comparison was just before the low point of the GFC.

    So cash just kept up when we cherry pick the most favourable dates for such a ‘comparison’ ummm. The danger of an overheated market dominating the World Index is worth taking note of though.

    The other point is more practical, it was hard to invest a lot in cash savings account in that era without attracting a lot of taxation, such that the return was more illusory than achievable.

    On the other hand investing in a world portfolio of shares was far more tax efficient, given if you did not sell, you do not attract capital gains tax and the taxation of dividends was much kinder historically. Clearly such an index product was not available then but something like a generalist, global investment trust was available.

    My earliest purchased of Foreign and Colonial was in 1990 at a rights adjusted price of £0.71, the price in late 2008 was around £2.30, the current price is around £7.30 plus a lot of dividends over the years. Even at the historic lows of 2009 I am pretty confident that a global approach to buying equities was a better option than cash over the prior 20 years !

  • 12 The Borderer August 27, 2018, 12:23 am

    @ Matthew. Fair enough.
    @ TI. Ave Imperator.

  • 13 YoungFIGuy August 27, 2018, 10:26 am

    Hi Hari Seldon,

    I assure you I didn’t cherry pick. The data set from BSA runs from 1989 to 2007. Before and after those dates are changes in methodology. To extend the data to present day I stitched it to data from the BOE. All that is made clear on the blog.

    The point is not that ‘cash barely keeps up with equities’ – a rather bizarre way to look at it – rather, even over a very long horizon of 20 years taking higher risk doesn’t promise higher reward.

    P.S. Tax would be wholly dependant on an individual’s circumstances. PEPs since 1986/1992 and TESSAs since 1991 mean that minimal tax may have been paid by an investor or saver (followed by ISAs from 1999).

  • 14 YoungFIGuy August 27, 2018, 10:40 am

    Apologies, the BSA data set I use starts 1987 (not 1989).

  • 15 Hari Seldon August 27, 2018, 2:43 pm

    @Young FIGuy
    I did not intend to accuse , merely inject a little irony, that the dates started near a cyclical high for that portfolio and near a cyclical low.

    It is worth noting the dramatic change in country weights of the world index from the beginning and end of the period that you illustrated….there is another lesson there.

  • 16 YoungFIGuy August 27, 2018, 3:11 pm

    Hi Hari, I understand. Sorry if I came over a bit defensive. Piecing together the data wasn’t easy!

    It is a good point on the world index composition. 30 years ago Japan has half the world. 100 years ago the UK was!

    Ideally I wanted to compare to the FTSE All Share TR. But unfortunately, 1. The index doesn’t go back that far and 2. Finding data is very hard. I’ve picked up a potential track on recreating the index, but I need to test the data.

  • 17 hosimpson August 29, 2018, 2:22 pm

    LMAO @ the Twitter thread about Tinder. Christ. Strange shit happens in the mating season.

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