Investors remain hesitant about venturing into investments due to concerns over potential financial risks
In the world of personal finance, a growing concern has emerged: the lack of understanding among young people regarding the impact of inflation on cash savings. This issue, along with others, has sparked a call for change from industry figures and financial experts.
Michael Healy, UK managing director at IG, is one such voice. He has emphasised the need to change the perception of investing to benefit more UK individuals. Healy also stated that cash accounts should carry the same proportionate risk warnings as investment products, aiming to bridge the gap between the perceived safety of cash and the potential risks it carries.
The numbers paint a clear picture. In the 2023/24 financial year, the number of cash ISA subscriptions grew by an impressive 67 per cent to £69.5bn, with 9.9m open accounts. However, over 50 per cent of people were unaware that cash loses value over time due to inflation.
This lack of awareness is not limited to the elderly population. Over 30% of respondents indicated a preference for cash due to perceived lower risks, despite potential long-term growth opportunities in other assets. Fears over falling stock prices are prompting UK savers to avoid investing, but this avoidance may come at a cost.
Marianna Hunt, personal finance specialist at Fidelity International, warned that "if interest rates should continue falling, cash returns are likely to drop further". This continued fall of interest rates may lead to further drops in cash returns, a reality that many savers are yet to fully grasp.
Industry figures are calling for regulators to enforce balanced risk disclaimers across both cash and traditional investment products. Three in five savers believe any form of retail investing is too risky, a sentiment that could be mitigated by clearer and more transparent risk disclosures.
One area identified for improvement is the way risk is framed for both cash and investments. A call to balance the risks and potential rewards of investing, rather than focusing solely on fear, has been made by Healy.
However, there is currently no specific organisation conducting research on changing risk perception in investments and increasing citizens' trust in the long-term value creation potential of investments in the UK. Despite this, the need for change is clear, and the conversation around balanced risk disclosures continues.
Damon Hopkins, head of DC workplace savings at Broadstone, stated that "Cash certainly remains king in the UK...despite the long term growth potential that other assets can offer savers." As the debate surrounding risk disclosures and investment perceptions continues, it is hoped that more savers will come to understand the potential benefits of diversifying their portfolios and embracing the long-term growth opportunities that other assets can provide.
The rise in stock and shares ISA subscriptions, which grew by 11% to £31.1bn with 4.1m open accounts, suggests that some savers are already making the shift. As awareness and understanding increase, it is hoped that more UK individuals will take advantage of the growth opportunities available in the investment market.
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