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The Actuary The magazine of the Institute & Faculty of Actuaries

£94bn lost by holding money as cash

Working age adults in the UK have lost out on £94bn over the last five years by keeping their money in saving accounts rather than investing it in the stock market.

Savers burning money / iStock
Savers devaluing their money ©iStock

That is according to a new report by the Social Market Foundation, which reveals that savers are holding more than £200bn in cash above the ‘rainy day’ level – defined as three months’ worth of income.

It argues that by doing this, many could be devaluing their money due to low interests rates and high inflation, and urges the government to encourage people to diversify how they save and invest.

However, it was also found that over 14 million working age adults in Britain are not saving at all, and that over 26 million do not hold adequate pension savings.

"UK households do not save enough – and those who do save are losing out on billions of pounds in interest by keeping their money in cash,” report author, Matthew Oakley, said.

“There are clear links between saving, wellbeing, living standards and economic growth, and the UK’s poor saving performance is a major social policy concern.”

As an alternative to investing in the stock market, the report reveals that savers could have made £40bn in returns if they had invested in peer-to-peer loans, rather than holding money as cash.

It suggests the government market up to 25% of its Future Britain Funds, and National Productivity Investment funds, to the public, giving them an opportunity to invest in the future of the UK.

These ‘Britannia bonds’ could lead to an investment worth at least £30bn over the next five years, delivering greater funding for infrastructure, according to the report.

In addition, it suggests the government use money saved by reducing the ISA allowance to give all 15-year-olds £1,500 to invest in a range of asset classes, supplemented with real life financial education.

“The government should act to make saving wisely second nature,” Oakley continued.

“Giving each 15 year-old £1,500 to invest from 2020 would ensure all young people have at least some financial assets, and would teach them the value of saving and investing wisely.”

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