ISA reforms critical to strengthening financial security.
A new study indicates that millions of people in the UK could be facing a number of challenges in the future, as a lack of understanding and relatively low take-up of long-term investing risks their financial security.
The study by online investment platform InvestEngine new report, Building a Nation of investors, indicates that 56% of UK adults are not investing or saving amidst the cost of living crisis.
Utilising research from regional markets and other data, the analysis shows that people in the UK are falling behind when it comes to knowledge and participating in investing. In Germany, for example, 48% of adults would prefer to invest their money rather than save it, compared to only 33% in the UK. Only 14% of UK adults have a stocks and shares ISA, equating to approximately 6.6 million adults. German nationals were also more likely to have more experience with various investment products compared to UK nationals, including products like exchange-traded funds (ETFs).
The study also highlights that financial education in the UK is inadequate. Approximately 55% of adults in the UK, equating to nearly 26 million people, disagreed or were unsure if investing money generated better long-term returns compared to cash savings, despite numerous reports indicating that investment was a better alternative to cash savings.
Over 60% of UK adults feel their education didn’t provide them with sufficient knowledge of how to invest their money. Nearly 70% of UK adults stated they had to participate in their own education when it came to managing their finances, with 73% of middle aged adults stating they wished they started investing or at least saving at a younger age.
With the UK Government interested in encouraging long-term investment, InvestEngine is calling for ISA and financial education reforms ahead of the Autumn Statement due this year. InvestEngine contacted the Treasury with its findings, requesting the following:
Creating a single ISA account combining cash savings and stocks and shares, simplifying the process of shifting funds into investments and eliminating the challenges of managing multiple accounts.
InvestEngine also suggests renaming ISAs to tax free accounts to highlight the main benefits of using them to increase participation. InvestEngine believes pensions and investments should be incorporated within a single investing banner and financial education should be improved at an earlier age so people recognise the benefits of long term investing.
Andrew Prosser, Head of Investments at InvestEngine, believes change is drastically needed, in terms of the culture with personal finances and how the industry and government can facilitate and drive change.
When it comes to wealth and investing, the best option for many people will be small investment via an ISA and diversifying low cost funds. As the Autumn Statement nears, Prosser explains that it is positive to see the UK Government is exploring ways to simplify the ISA market and make it easier for people to save and invest. There needs to be more action to simplify the system and strengthen financial literacy. This is critical to ensure more people can reach financial security in the future.
