Cutting the Cash ISA allowance might be a disservice. If we want more people to invest we need to change minds.
They call it ‘flying a kite’. The act of leaking information to gauge public or audience reaction to an idea before committing to it. But discerning any reaction would’ve been tricky in the run up to this Budget, so many kites were flown.
Reducing the Cash ISA tax-free allowance had been trailed for months before it was announced yesterday. It demonstrates a fundamental misunderstanding of people and their attitude to saving and investing.
We’re told Government wants more people to invest. ISAs are an effective way for most of us to do this. Both Cash ISAs and Stocks & Shares ISAs are good products but Cash ISAs are much more popular. The assumption appears to be that if you make Cash ISAs less attractive, money will flow into Stocks & Shares ISAs instead.
But it’s much more complicated than that and there are no quick fixes. There are considerable barriers to investing that need to be overcome.
If the Government wants to encourage investing, it needs to work with brands in three distinct ways:
Revamp the reputation of investing. We’ve seen the movies and we’ve heard the scandals. Rightly or wrongly, investing is often associated with unethical and/or macho behaviour. As a result, people assume investing is ‘not for them’. The reality is very different, many of us invest without realising it through our pension contributions, but the action we need to take is clear. If we want investing to feel accessible, we need to work hard to redefine its image.
Find a better way of explaining ‘risk’. Investing is ‘riskier’ than saving, of course it is, but some people go so far as to equate investing with ‘gambling’, and most of us are uncomfortable with the idea of playing fast and loose with our hard-earned money. The health warning that comes with investing services, in big bold letters, creates fear e.g. ‘you may get back less than you put in’ - no wonder many of us prefer the ‘certainty’ of positive (albeit smaller) returns from saving. If we want to encourage investing, we need to find a better way of communicating ‘risk’ that is honest, but not alarmist.
Invest in building financial literacy. It is often noted that the UK has low levels of financial literacy. It’s quite easy to use a search engine and see the (predicted) returns over time, from capital invested vs saved. Invested money always seems to grow more quickly, yet too many people are unaware that returns are (usually) higher from investing. Poor financial literacy has direct consequences on people’s quality of life. It plays out in all kinds of ways as we get older. Much social good will come from a sustained investment in building financial literacy and one of the byproducts will be more people investing over time.
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