More young people are turning to ISAs to invest, but also to have impact

The impact of the global pandemic, big political changes, and social justice movements on day-to-day life in the past 12 months has been substantial. One of the key areas affected has been people’s personal finances, from loss of income on one hand, to increased savings from less leisure spending on the other.

So how have largescale changes affected household or individual financial decisions? Two thousand adults were recently surveyed by Opinium Research on our behalf to find out current views on money, investments, and impactful ISAs. Questions touched on pandemic savings, interest in opening ISAs and what drives that decision-making, and whether the pandemic has encouraged more people to consider ethical and sustainable investment.

While many younger people have faced unemployment, reduced working hours or a difficult financial situation over the past year, two fifths (42%) have found themselves with more money to spare from not spending as much during the pandemic.

40% of 18-34year olds say that their interest in ISAs and investing has increased during the last 12 months, with the most common reason for this being that the pandemic has made them more aware of the need to have a secure long-term financial future.

One in five 18-34-year olds (18%) – equating to over 2,600,000 people – are looking to open a new or additional ISA this year, while an extra one in 10 (9%) will move more money into an existing ISA. These new investments are most commonly going into investment, rather than cash ISAs – with 51% planning to open a Stocks and Shares ISA, and 25% considering an Innovative Finance ISA that offers crowdfunded investments.

It’s clear the under 35s are spearheading the ethical investment movement. Younger investors are much more likely to choose investments and providers that align with their values, with 94% of ISA holders age 18-34 saying they already have or would consider switching their money to an ethical provider – compared to 71% of over 35s. This indicates that as the next generation of investors comes to choose their ISA products, there could be a significant boost in ethical and sustainable investments.

Kia Commodore, personal finance expert and founder of financial literacy platform Pennies to Pounds, has recently highlighted impact investing through a Triodos Stocks and Shares ISA. 

Kia commented: “Young people are sparking a movement towards sustainable investments that will make ripples throughout the investment industry. We are seeing the rise of empowered investors, who want to know much more about where their money is going and what it is funding. They are taking control and making decisions to invest in companies that best align with their personal values. Investment providers who fail to join this movement may lose the backing of this new generation of investors in the long term.”

However, across all ages, interest in ethical investments is on the rise. Investors are looking to use their investing power to support healthcare and a greener future, with two thirds (62%) claiming the industry needs to do more to help people invest their money in a way that supports positive social and environmental change.

When it comes to avoiding industries with negative connotations, there is a clear opportunity to offer investors the chance to align their money with their personal values in other ways. Over a third of people who wouldn’t want their investments to support fossil fuels (37%), fracking (36%) or gambling (33%) say they would not work in these industries. Likewise, a third of those that wouldn’t want to invest in fossil fuels (37%), fracking (34%) or fast fashion (32%) say they would not vote for a politician that had links to these sectors.

Seven in 10 UK consumers (71%) think that banks and financial providers need to be more transparent about how they invest their customers’ money, while two thirds (64%) say the Government needs to do more to make banks be transparent.

Meanwhile, half of UK adults (50%) think that banks and financial providers purposefully hide the sectors they invest in from their customers.

Consumers are also calling for increased transparency when it comes to avoiding greenwashing, with 64% saying there needs to be industry-wide standardisation in the definition of ‘sustainable’ or ‘ethical’ funds.

As a new generation looks to ISAs for post-pandemic financial security, demand for funds to be transparent in their investments will only increase. For too long, the financial industry has hindered consumers from being able to make informed choices about where their money goes. Consumers need clear options to use their investments in line with their values – whether that’s investing in new technology, sustainable energy, or healthcare systems.

Although, there’s still more to be done to help people understand sustainable investing and to feel confident to make a change. Despite the calls for increased transparency, 61% of ISA holders admit that they have never taken steps to ensure their money is being invested in line with their values.

When such a large proportion of young people are interested in an impact investment ISA that matches their values, it suggests that there has been a real step change in awareness of the links between personal finances and the wider world. We want to encourage people to think about what their ISA pot is doing, just as they would consider the ethics of what company to work for or what politician to vote for.

Please note that capital in any investment product is at risk. The value of an investment may go down as well as up and investors could lose some or all of their money. For the Triodos IFISA, investors may not be able to access their capital during the life of their investment.

The tax benefits of an ISA are subject to change and depend on individual circumstances.

More information about the Triodos Stocks and Shares ISA is available here.