BY 2020, people in their late teens and twenties could be in a much better situation than today's young adults when it comes to home ownership, entrepreneurship and general prosperity.
This is because it is estimated that, from 2020, the first year child trust fund (CTF) holders celebrate their 18th birthday, their CTF accounts could pay out an estimated £2.4 billion a year.
Research published today by the Social Issues Research
Centre (SIRC), commissioned by the Children's Mutual, is describing this transformation as a "new dawn for teens".
The 2020 Vision: The Trust Fund Generation report predicts a future where the age of home ownership could drop, demands on higher education increase and a new generation of entrepreneurs is born.
The report has been launched on the third anniversary of the first CTF vouchers being issued by the government.
CTFs are a long-term savings and investment account for children born on or after 1 September 2002. Their parents receive a £250 voucher to start their account which can be topped up. The savings built up over the years belong to the child and cannot be accessed until he or she turns 18, when they are free to do what they want with the money.
According to SIRC, a CTF lump sum could re-establish home ownership as a rite of passage for 20-somethings and shake-up the UK property market. Calculations show that, although the average first-time house deposit could rise to £18,800 in 2020, it could be met by a fully topped up CTF which may deliver around £37,100. When asked what they would do with a hypothetical lump sum of £20,000, today's youngsters ranked buying a house as the third choice after continuing to save and paying for higher education.
David White, chief executive of the Children's Mutual, said: "Seven out of ten of today's children expect to go to university, graduating with a debt of £12,000, and the cost of a deposit for a house rose 450 per cent in the ten years following 1995. Parents realise they need to help but today the only option for many is to borrow.
"For parents with children aged five and under, topping up their CTF and inviting grandparents and other family members to do the same, is a potential solution."
But Edinburgh-based independent financial advice (IFA) firm Albannach FM has warned that CTFs are not meeting the government's objectives. Although the aim of the CTF scheme is to provide 18-year olds with a nest egg to be invested in their future, Albannach said its research has found that an average of 70 per cent of a cross-section of 16 to 18-year-olds regarded any amount under £20,000 as disposable income rather than for investment.
According to its survey, the most popular use for £500 was for socialising or visiting the shops – a much shorter-term benefit than was ever intended for these funds. Even when asked what they would do with £5,000, less than a third stated they would invest it in their future. However, when asked what they would do if they received a significantly larger pot of £20,000, over half of the teenagers said they would invest the money for their future. This indicates that only when it gets to a large sum, such as £20,000, will children use the money for the government's intended purpose.
Jason Hemmings, a director with Albannach, said: "Children should be taught from a young age to plan for the life they want to lead when they leave school. If a significant amount of money is saved then the children will have a financial head start and prospects such as starting their own business, going to university or even buying their own home won't just be a fantasy."
