Use GUI to add a new user with encrypted home folder

By default, Ubuntu 12.04 user manager does not allow you to add new users with encrypted home folders. Refer this link to know how it is done from the command line.

To add a new user using GUI, you should install:
$ sudo apt-get install gnome-system-tools <enter>

This gives additional options that you can enter when adding a new user.

You will now see Users (default Ubuntu user manager) and Users and Groups (Gnome Settings user manager) icons in Dash. You can use the ‘Users and Groups’ to add new users and control their privileges with more granularity.