56% of young adults in the UK are foregoing potential investment returns by storing a significant portion of their money in cash savings accounts.
This was a highlight of the findings presented in a recent survey, which was commissioned by WisdomTree; the exchange-traded fund (‘ETF’) and exchange-traded product (‘ETP’) sponsor.
With interest rates at record low levels and inflation climbing, those putting most of their money in traditional cash savings accounts are failing to see real returns as their money struggles to keep up with inflation, which currently stands at 2%.
Savings accounts are now so low that some young British adults appear to be seeking out riskier asset classes to generate returns.
When asked about the main drivers of long-term investment returns, property (22%) and savings accounts (20%) are seen as the main drivers, followed by cryptocurrencies (19%) and stocks (17%).
Today, in the UK, the best interest rate available on an easy access savings account is just 0.65%. This compares to the 5.83% average annualised return over the last 10 years from the FTSE 100 and the 69.5% annualised return of bitcoin, the largest cryptocurrency, since the end of 2013.
The outperformance of cryptocurrencies, relative to cash savings accounts and stock markets, has increased the investment appetite of young British adults with 67% having already invested or looking to invest in cryptocurrencies going forward.
Lack of Understanding Increases Risk
Despite a willingness to invest in cryptocurrencies, 63% of those surveyed indicated they do not understand how cryptocurrencies work. This lack of knowledge of this unregulated asset class could put capital at greater risk if they choose to invest. However, young British adults do have an appetite to learn more about cryptocurrencies, with 62% expressing an interest in learning more about cryptocurrencies with a view to invest in them or buy more.
Social media platforms (33%) and YouTube (31%) are the most common places for young British adults to access information on cryptocurrencies. Determining which sources are reliable and presenting fair and accurate information on these platforms can be difficult and may encourage people to form bad habits and make regrettable decisions.
“Our research reveals that young British adults are considering risky alternatives to savings accounts that can deliver inflation-beating returns but don’t understand what they are investing in,” remarks Jason Guthrie, Head of Digital Assets, Europe, WisdomTree. “While cryptocurrencies have gained popularity in recent years given their strong outperformance compared to other asset classes, it is vital that investors – of all ages – understand what cryptocurrencies are and how they work to identify the potential risks and the opportunities.
“This is a young, volatile, and currently an unregulated asset class so knowledge gathering from reputable sources is paramount before making any investment decisions. Solely accessing investment information from YouTube or social media platforms could encourage people to take more risks or leverage and chase the returns achieved by others – this is a sure way to have a negative experience.”
The main factors, highlighted in the survey, that would encourage young investors to invest in cryptocurrencies include learning the fundamentals (38%), followed by price falls and opportunities to buy the dip (30%), and knowing more people who invest in them (30%).
Despite recent media attention regarding high profile figures investing in cryptocurrencies, just 16% of respondents would consider investing if endorsed by high profile figures.
The survey also showed that regulation plays an important role in bringing confidence to young British adults, with 57% believing cryptocurrencies are still under-regulated and 61% indicating there are not enough regulated entities providing access to cryptocurrencies.
Guthrie continued, “The survey results tell us there is an appetite for investor protections in the form of regulation. As the cryptocurrency market continues to mature, we expect greater regulatory oversight and, at some point, investment products to be approved by the regulator. All of which could create a safer investment environment for those looking to allocate to cryptocurrencies and tap into the potential shown by the asset class.”