Vince Cable: you’re better off paying your debts than investing in Child Trust Funds

Earlier this week, the BBC reported that a third of a billion pounds has been wiped off the total value of Child Trust Funds as a result of recent plunging share values.

The government argue that share investments still show a better rate of return than other forms of investment over the longer term – and historically speaking they’re right. So I guess we’ll just have to hope the economic norms of the last seventy-to-a-hundred years continue for as long as is required by Labour policy-makers.

In the here and now, Vince has some pertinent commentary, as reported by Channel 4:

Cable suggested that the 75% of families who put their money into the accounts may have been better off using it for other purposes.

“One of my big concerns about this whole Child Trust Fund idea is that it was encouraging people to put whatever money they had into one particular kind of investment, and it was this long-term investment for your kids at 18, when actually for many families a better use of the money, if they had it, would have been to pay off their debts,” he told BBC Radio 5 live.

“When you bring it down to the level of the individual family, to have a few hundred pounds coming in, it probably would make much more sense to pay off an overdraft carrying 20% or 30% interest than to put it into a long term account of this kind that we’re now discovering can actually lose money.”

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4 Comments

  • David Morton 13th Dec '08 - 4:29pm

    Vince is of course right. However its a critique that could be applied to any kind of savings when you are in debt. Why not have a pop at ISA’s, premium Bons or the box under the bed ?

    I’ve never quite understood the party’s Hostility to baby bonds. Its the antithesis of short term policy making setting up something that will only get you votes 18 years hence. It encourages savings and is a genuine attempt to address asset as well income inequality which we reaely talk about.

    Its also become counter intuitive. Surely its short term consumption out of proportion to long term saving that has gotten us into the current mess ? yet a scheme that delays current spending and fosters long term savings by family and friends is in our sights.

  • LiberalHammer 13th Dec '08 - 5:45pm

    Echo David Morton’s comments. Debt is invariably more expensive than (e.g.) interest earned on savings, and so Vince’s comments are really little more than generic financial advice.

    I don’t understand why this particular scheme is the target of criticism. Even if it was left in a bank the compound interest would be a tidy amount for an 18 year old. And as those 18 year olds are going to have to pay the taxes that Brown’s borrowing will foist on them I think we ought to give them a break!

  • I haven’t added a penny of our own money to the initial £250 Child Trust Fund amount. When my children turn 18 it will basically be a nice fat 18th birthday present for them. The money is legally theirs.

    If I were saving for possible university costs, a first car etc. etc. for them I’d rather do it my name in an investment ISA. That way we can still lock in the money if we want to but we also ensure it is spent on the intended expense when they turn 18.

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