A quarter of Britons would keep £10K in cash for a decade
A quarter of UK adults would keep £10,000 in cash, rather than invest it, even if they knew they would not need it for at least 10 years, new research from Scottish Friendly has found.
While most understand inflation can erode the purchasing power of cash over time, that knowledge does not necessarily translate into a willingness to invest, according to the mutual’s latest Family Finance Tracker.
Fifty-eight per cent believe £10,000 held in cash would buy less in 10 years than it does today, assuming inflation averaged around 3 per cent a year over the period, with just over half (51%) expecting it would buy between 10 or 25 per cent less.
However, almost a fifth (18%) believe the money would retain roughly the same purchasing power, while nearly a quarter (24%) are unsure what effect inflation would have over the period.
But despite the majority (58%) recognising the long-term impact of inflation, over a quarter (26%) said they would still put £10,000 into a cash savings account even if they knew they would not need the money for at least a decade.
A further 22 per cent would split it between cash savings and investments, with just 17 per cent indicating they would invest most or all of the money.
The research comes as the Government continues to try to encourage more people into investing, having introduced plans to reduce the annual Cash ISA allowance for under-65s from £20,000 to £12,000.
Scottish Friendly supports measures designed to encourage people with longer-term savings to consider investing but says changing the incentives around cash needs to be accompanied by greater efforts to address the reasons people remain reluctant to invest.
Kevin Brown, a savings expert at Scottish Friendly, said: “Cash has an important role, particularly for people who expect to need access to that money in the near term or for emergencies. However, if someone knows they won’t need that pot of money for at least a decade and they still default to cash, that points to a deeper problem: they risk missing out on the greater returns that investing can offer over the long term.
“Most individuals understand that inflation can gradually erode the spending power of cash. The challenge however is that knowing this does not always resonate sufficiently with people to make them feel more comfortable investing.
“The Government is right to look at ways of encouraging more people to invest for the long term. Making cash less attractive by ISA allowance reforms may help nudge some people in that direction. But it can’t be the whole answer.
“If we want to create a truly national culture of investing, we need to tackle the reasons why people remain reluctant to invest. That means doing more to address people’s fears, concerns or misunderstandings. Initiatives such as the Savvy Squirrel campaign, simplifying the ISA regime, not adding further friction through new tax charges, and making sure risk warnings inform people without putting them off before they have even started are all key.
“We also need to look at how the tax system can positively encourage long-term investing, not just relying principally on making cash less attractive. The aim should be to make the step from saver to investor both easier to understand and easier to take.”
Source: Scottish Friendly Family Finance Tracker Survey
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About Scottish Friendly
Scottish Friendly is a leading UK mutual life and investments organisation. It provides its members and their families with a wide range of investment and protection solutions and provides life and investment products and services to other financial organisations.
Scottish Friendly has roots stretching back to 1862. Established as the City of Glasgow Friendly Society, its name changed in October 1992 when it took over Scottish Friendly Assurance.
www.scottishfriendly.co.uk
Scottish Friendly, Galbraith House, 16 Blythswood Square, Glasgow, G2 4HJ
Scottish Friendly Assurance Society Limited. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Scottish Friendly Asset Managers Limited. Authorised and regulated by the Financial Conduct Authority.
Remember that the value of investments can go down as well as up and the child could get back less than you paid in. The funds in a Junior ISA belong to the child and can only be accessed by them when they turn 18.
Past performance is no guide to future results. Tax treatment depends on individual circumstances which can change in the future.