Association for Public Policy Analysis & Management

In 2005, the U.K. implemented the Child Trust Fund (CTF) to improve the life chances of children born into poverty. Under the CTF, the government funded an account for each child at birth and made additional contributions throughout childhood, with larger amounts going to children from low-income families. The hope was that upon reaching adulthood, the child would use these funds for activities that would improve their economic mobility.

The introduction of the CTF, and the abrupt ending of the program in 2011 as part of the austerity measures under the Cameron government, provides a unique natural experiment to test how parents respond to a large-scale financial investment in children. This paper explores if parents alter their spending patterns in response to the CTF and if low SES parents respond differently than middle and high SES parents. Using data from the U.K. Living Costs and Food Survey, I examine how CTF eligibility affected household expenditures, expenditures on broad groupings of goods and services and expenditures on goods and services that would be expected to be related to parental investments in children. I find that while low socioeconomic status (SES) households do not demonstrate the largest changes in their expenditures in response to the Child Trust Fund, middle SES households with eligible children significantly alter their expenditures to increase parental investments. These results suggest that for some households, child savings accounts increase parental investments that improve child well-being.