Julian Knight: Why waste a chance to give a child a financial head start?

Child trust funds (CTFs) celebrate their third birthday next Sunday. CTFs are unique: they are a government giveaway, set up at a time when the Treasury actually had some spare cash.

The parents of every newborn child receive a voucher worth £250 (low-income families get £500), which they then invest in a stock market fund or a savings account. If they don't invest it, the Government does it for them. The idea is that the investment will grow to give the child a financial kickstart at the age of 18, all tax-free.

Parents and grandparents can contribute a maximum of £1,200 a year to a CTF, and this top-up facility is where the real advantages are seen. It has been estimated, for example, that if parents invested child benefit payments in an equity CTF, the fund could be worth £30,000 by the time the child turned 18. That's a mighty nest egg, and considering the burdens being loaded on the young – from student loans to overpriced housing – a vitally important one.

Unfortunately, only a small minority of parents and grandparents are chipping into CTFs. And of this modest number, many are paying in too little to make much of a difference.

Family finances may not stretch to additional savings – in the present torrid financial climate, we can all understand that. But there is some suggestion that parents feel uncomfortable about the prospect of their child coming into a big cash sum, which they are free to spend as they wish, when they are still only 18. I have less sympathy here; are parents saying they don't believe that they – and their children's schools – are capable of instilling at least a degree of financial commonsense in their kids?

Finally, the reluctance to invest in CTFs could just be down to parents not knowing much about them. Well, the advice is to get to know them now as they can make a real impact on your child's prospects.

FSA is damaged goods

As a mea culpa goes, it was fairly dramatic. The Financial Services Authority (FSA) admitted to a catalogue of regulatory failings around Northern Rock, barely bothering to check on the financial health of the UK's fastest-growing mortgage lender.

I'm not going to rehash what went wrong but the proposed solution gives me a little disquiet. The FSA says it doesn't have enough staff. Fine; if 100 more bodies on the ground is the answer, then get them in. But it already has a staggering budget of £276m a year and employs around 3,000 staff. Perhaps it ought to con-sider shifting resources – ie, jobs – from other areas?

All the time it was "asleep on the job" over Northern Rock, the FSA's staff were producing mortgage regulation documents so large you could choke a donkey with them, and illustrations for borrowers that no one gives a hoot about. And considering that its budget is raised by a levy on financial firms, we are all ultimately paying for this through higher charges.

Industry reaction to the report was very forgiving, reflecting the desire for a steady FSA as the credit crunch worsens. Last week, we had the unedifying sight of the regulator being propped up by the industry it regulates. That is incredibly damaging for its long-term authority.