Sam Dunn: Can we be bothered to make our kids richer?

New research shows two-thirds of parents have no idea that child trust funds exist
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The Independent Online

We are being offered a great opportunity to change the way we save and we don't know how to grasp it.

We are being offered a great opportunity to change the way we save and we don't know how to grasp it.

And no, it's not the proposed pension shake-up that emerged from the Turner review last week. Rather, this hope rests with those who are still learning to walk and talk.

Babies born after 1 September 2002 will be starting out with a £250 cash gift - a handout from Chancellor Gordon Brown whose son John will celebrate his first birthday today. The idea of the child trust fund is that, given a pot of money, kids will develop a healthy interest in it as they grow older. So what better opportunity for lessons in financial planning from parents, school and business?

Granted, £250 (or £500 for low-income families on the full child tax credit) is not an inspirational sum - though an as-yet-unknown sum will be added when the child is seven - and won't turn into a mountain of cash over 18 years. Even with growth rates of about 6 per cent a year, it would barely nudge £650.

However, family and friends will be allowed to contribute up to £1,200 a year of their own cash to a baby's trust fund, and with similar growth this could generate a pot worth £35,000, tax free.

Of course, today's little treasures don't actually know this yet, which is why the success of the scheme is in the hands of those who should know better: parents, the Government and financial services companies.

Unfortunately, they don't seem to be up to the task.

For a start, new research from the Association of Investment Trust Companies suggests that two-thirds of parents have no idea that the child trust funds exist, even though the accounts are scheduled to be up and running in April next year.

Second, there isn't likely to be much choice. Although there has been enthusiasm in some quarters, notably from friendly societies, the general response has been shamefully muted. Many providers and insurers have yet to commit, while heavyweights such as Prudential and Legal & General, which could have been crucial cheerleaders, have turned up their noses.

Not surprisingly, the catch is the cost: managers say they won't be able to make the trust fund work with a maximum charge of 1.5 per cent. This is the same argument that has stifled the growth of stakeholder pensions - one of the truly innovative pension ideas to have emerged during the past few years.

Third, throw in our dislike of anything to do with handing money over to a financial services companies, and the child trust fund might never progress beyond its infancy.

This would be a terrible waste. All parents want the best possible chance for their children, and the trust funds could make a big difference in the long run.

Not everybody will be able to pay extra cash into the funds of course; as the Turner report reveals, we clearly have enough trouble saving for our own future. Yet any spare cash a parent can afford to contribute should help.

Since there will be some choice in the funds available - those companies that have signed up include the Liverpool Victoria friendly society, fund manager Fidelity and the Nationwide building society, it's important to decide what kind you should go for. Should it be a simple cash fund, or one that goes for growth by investing in shares before switching to bonds as an 18th birthday looms?

These are big decisions that parents shouldn't ignore. However, the danger is that they will unless there is a huge shift in emphasis from the Government.

Letters being sent to eligible parents next month with an outline of scheme details will at last start the ball rolling. These will be followed by further information and the first of the £250 vouchers in January (though they won't go into children's accounts until April).

However, I fear this won't be nearly enough to get parents asking what to do or seeking advice on the different options.

The Government must raise its game now, whether through a consumer campaign to raise general awareness or via public support for those providers taking part.

We're in danger of looking a gift horse of an idea in the mouth, and watching it gallop away.

Melanie Bien is away.

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