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Under 25s make most of annual ISA allowance

The under 25s are not known for good savings habits, if most were asked to comment on the financial habits of this age group they’d likely say they get paid and head to the pub. Their salaries are lower and they’re riddled with student debt, saving is not high on the agenda. But the latest HMRC data shows that 78% of the 1.2 million under 25s that have an ISA, use part of their ISA allowance each year.

ISAs grow in popularity with age

Unsurprisingly the ISA grows in popularity with age. The under 25s make up the smallest proportion of ISA holders, whilst the over 65s make up the largest. This mirrors the wealth curve in the UK and so makes a lot of sense.

Yet whilst the over 65s are the largest users of their ISA allowance, a whopping 49% of over 65 year-old ISA holders failed to use their ISA allowance in 2013-14. Do the younger generations perhaps understand the benefits of regular saving more than their older counterparts?

Young use their annual allowance but are they making the most of it?

Building savings into a monthly budget is a fantastic habit to build. With 78% of under 25 ISA holders, and 64% of 25-34 year-old ISA holders, using their ISA allowance year-on-year it seems to be a message that has sunk in with the younger tax savvy savers.

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However, whilst they are building their ISA savings year-on-year, are they doing this in the most efficient way? Just 4% of under 25 ISA holders have a stocks and shares ISA, the 25-34 year-olds are marginally better but just 9% of them invest part of their ISA allowance.

If users of the ISA allowance were to look for a flexible cash account they would find that they will be achieving just 0.1% over inflation, many don’t even offer that and if you’re not achieving at least 1% returns the real value of your money will be decreasing.2

Savers of all age groups need to wake up to the environment we’re in. Tax efficient savings are a must but keeping money in cash accounts opens everyone up to the very real risk that they will be losing value each year.

1 HMRC, August 2016
2 MoneySavingExpert, November 2016

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