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Tuesday, November 1st, 2011

Junior ISAs versus CTFs
posted by Ross Dawkins

The Junior ISA should provide a ready-made vehicle for saving by families and friends on behalf of children. There are a number of potential benefits that can be accessed by increasing family saving.  First, it can increase the capacity of the family to withstand financial stresses and strains (by providing some resources to dip into in the event of an unexpected shock to income).  This may even enhance the overall durability of a family (given that financial issues can be a major contributing factor in marital or family break-up).  Second, it permits the build-up of an asset that can contribute towards broader opportunities for the child or children.  As such, the Junior ISA is a “good thing”.

However, unlike with its predecessor (the Children’s Trust Fund) there is no seeding by the government.  The JISA is an enabling product not a universal offering.  As such it is likely to lower the cost of saving (say for a child’s grandparents) but will not offer added benefits such as assistance in wider financial education initiatives.

The loss of seeding, in particular, is regrettable.  As I have previously argued with respect to CTFs even the minimum public seeding (i.e. without anyone any additional funds) on that product could have had sufficient value at maturity to fund learning to drive, a rental deposit and such like — potentially expanding the choice set significantly of children born in low-income families.    

In consequence the "nudge" of the JISA will be gentle in the extreme.  However, since this is — by design — a long-term policy in its outcome effects the opportunity cost of the lack of seeding in the JISA scheme will not be felt for some time.



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