Value of windfalls blown away by inflation
New research from Schroders, the global asset manager, reveals that in the last two years over 14 million people have received a lump sum payment of at least £500 from bonuses, inheritance and cash gifts. However, almost a third (31%) of those receiving a lump sum invested this money in a high street savings account, despite instant access accounts paying between a mere 0.16% and 0.23% interest over the last year. With Consumer Price Index (CPI) inflation running at 4.4% in February the real value of these windfalls invested has actually declined over the period.
Schroders is encouraging people to review their investments to maximise returns or see their long term purchasing power decrease. The research indicates people are not exploring the variety of investment options available, as just one-in-twenty (6%) of those surveyed invested their windfall in stocks and shares and just 2% in unit trusts. Almost a quarter (23%) of recipients of financial windfalls used these funds to cover everyday living expenses rather than saving for their future. A further 8% of recipients used a financial windfall to pay down their mortgage obligations.
Almost half (49%) of those receiving a lump sum of at least £500 didn't seek advice on how to use these funds from anyone, perhaps because they didn't want to reveal their windfall or felt they knew best how to use the funds. Less than one-in-10 sought professional advice, with just 4% speaking to an Independent Financial Adviser and 4% speaking to their bank. Those who did seek advice turned to their partner (31%), parents (5%) or friends (3%).
Robin Stoakley, Managing Director, Schroders' UK Intermediary Business said: "It is disappointing that people are seeing the real value of their savings eroded by relying on high street accounts that have offered record low returns on investments in the last two years. Inflation is eroding the real value of monies held in many of these accounts, so people looking to invest a financial windfall should explore other investment options (with the level of risk they are willing to take in mind) to ensure they get the most out of their money."
In the last 24 months over three million people (7%) have been gifted at least £500 by a family member. Over 2.5 million (5%) of people have received a bonus of at least £500 from their employer, with 2.2 million receiving monies from an inheritance. The taxman has gifted over 1.1 million rebates of over £500 in the last 24 months and over a million people have received an insurance pay out.
Regional findings:
Residents of London were amongst the greatest number of recipients to receive lump sums of money in the last two years, reflecting the so called ‘bonus culture' in the capital. Residents of Scotland were the least likely to receive any lump sums of money from the likes of competition prizes, legal pay-outs and gifts.