A quarter of UK adults would choose to keep £10,000 in cash rather than invest it, even if they knew they would not need it for 10 years, according to new research from Scottish Friendly.
The findings come as the Chancellor made the decision to scrap the reduction in the cash ISA allowance from £20,000 to £12,000 in Wednesday’s Budget, following fierce criticism of the proposal.
According to Scottish Friendly’s latest Family Finance Tracker, while most people understand that inflation can erode purchasing power of cash over time, it is not enough to push people to invest.
Almost six in 10 (58%) believe £10,000 held in cash would buy less in 10 years than it does today, with just over half (51%) expecting it would buy between 10 or 25% 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 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% said they would split it between cash savings and investments, compared to just 17% who said they would invest most or all of the money.
Kevin Brown, 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.”
Brown said the UK must tackle the reasons why people remain reluctant to invest if it intends to create a national culture of investing. This includes doing more to address people’s fears, concerns or misunderstandings.
Brown added: “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.”
Main image: christopher-bill-rrTRZdCu7No-unsplash
