youthmoney

Scrap child trust funds, says Carl Emmerson, deputy director of the Institute for Fiscal Studies. The analysis, from a widely respected think-tank, is that the scheme’s cost is small, but not insignificant. Emmerson floats the idea of ending the payments – two of £250 so far, more to low-income families. Parents save or invest the money on behalf of a child, who can use the money at age 18.

Emmerson’s argument is that the trust funds do two things. They give 18 year olds money they otherwise wouldn’t have. And they provide a chance for learning about savings and investments – a practical form of financial education.

On the second point, he says let schools take on the financial education.

And on the first, he accepts that scrapping the scheme would leave 18 year olds worse off. He could hardly deny it. But he suggests that the cuts in public expenditure needed in the government’s spending plans would leave them worse off in other areas during their childhood. Cuts to tax credits or to pre-school education could reduce their quality of life and future life chances more than scrapping the child trust fund would.

It’s an argument.  It seems to be popular with the press, who never really liked the idea of giving young people money. And it’s certainly going to be a serious issue as the public expenditure cuts start to become real and hard choices have to be made.

Some points:

• Schools are hopeless at financial education. Trying to improve any organisation’s performance from truly appalling to averagely mediocre is not a sound use of resources. Even if that minimal improvement could be achieved, which for schools is doubtful.
• In any case, the trust funds improve parents’ financial education – which schools could not do. Since young people gain a large proportion of their knowledge and understanding from their families, it is not wise to cut it.
• How is a young person from a low income family supposed to take an interest in learning about savings vehicles if there is no prospect of having any money to save? What would be the point?
• Yes, there are any number of ways that public money could be spent on adults – tax credits and pre-school learning – that might advantage children and young people indirectly. But none is any kind of substitute for having your own cash to determine what to do with.

It is deeply depressing that, when budgets get tight, the one small measure that gave money directly to young people, under their control and their choice, is the first to be considered for ditching.

Here’s the figures in perspective. The savings needed in the spending plans are estimated at £26 billion. Scrapping the child trust fund could save £0.5 billion. That’s less than two per cent of the target. But the loss to someone born today, of £500 that they might have had aged 18 will be total – 100 per cent. It’s not a proportionate share of the cuts.