If you're expecting a newborn baby or your child was born after 1st September 2002 Child Trust Funds are something you need to know about. Essentially a new government scheme that hopes to encourage saving, it means that every newborn baby will receive £250, or for low income families £500, to be invested tax-free and made available once the child becomes 18.

Alone this is unlikely to result in a particularly massive pay out (the full £500 would be worth £1,410 based on an estimated 7% growth) but family and friends will be allowed to add up to £1,200 a year in additional investment. Any income arising from these contributions will be tax free. This would clearly be enough to give any child a very worthwhile financial boost. The scheme should therefore open up the possibility of building significant savings for their child to a wider demographic than might previously have been the case. Far more children will in theory now be able to make use of a handy lump sum that could be put towards university fees or a first car, anything they want in fact.

CTF's are designed to be as simple and transparent as possible for parents. First up a voucher will arrive from the government, there's no responsibility placed on the parent to make an application. It's then down to you to decide how you want to invest it although there will be limitations – nothing too high risk essentially. Even if you fail to invest after a year HM Revenue and customs will do it for you, after which point parents are free to assume responsibility for the account. On top of all this the government will contribute a further £250 when the child reaches 7 (again, it'll more for low income families – an additional £250) which will be paid direct into their account.

Aside from being a useful savings tool for future generations and especially those children who may not otherwise have had anything set aside it's also being plugged as a scheme aimed at financial education. Giving kids a potentially valuable experience of real money management seems to have been one of the key motivations behind the idea with children set to receive relevant financial advice and education leading up to the point at which they are permitted access to the money. Perhaps the aim is to help go someway towards instilling a saving habit that might counterbalance an increasingly ‘buy now, forget about the consequences' culture.