£4,000 cash ISA cap: Can it help close the gender investment gap?

UK chancellor Rachel Reeves is not the only one who wants you to stop putting your money into cash ISAs, especially if you're a woman, as you are quite simply missing out on wealth accumulation.

AJ Bell Money Matters, a campaign run by the investment platform AJ Bell to promote women’s financial independence, found that while women were ahead of the game when it comes to saving, holding around a million more cash ISAs than men, the same cannot be said about investing with men holding around 500,000 more stocks and shares ISAs. HMRC data shows men’s ISAs are worth at least £3,000 more than women’s. It also means the UK has a gender ISA gap totalling £6.6 billion. This is one of the many financial gaps women face, such as the pensions gap.

It starts early at age 21 and peaks when women are in their thirties, when the total ISA gap hits 46%.

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While I do not believe for a second that the suggestion of capping the cash ISA at £4,000 will somehow push female cash hoarders into stocks and shares ISAs – and neither should cash lovers be bullied into doing so by having their tax-free wrapper allowance cut – it is worth looking at what the barriers to investing for women are and what can be done about it.

Why do women not invest?

The saying, ‘time is money’ rings true here. Women often say they do not have the time, but it does untimely cost them long-term wealth as they miss out on years of compound growth, plus they fail to keep up with inflation by not investing.

It’s understandable. If you’re a busy mum for instance, you may find searching the internet on investing information somewhat overwhelming and it could take hours.

It doesn’t matter how well tuned you are with your finances, even the best of us can let investing slip.

Speaking at an event in the House of Lords this morning, Baroness Helena Morrisey said even she, as someone who managed other people’s money as a fund manager, neglected her own finances due to a busy life.

However, she said it was still important that women thought about their goals and took control of their financial futures.

Baroness Morrissey said she simply did not spend enough time thinking about investing in her 30s when she could have taken more risk to maximise returns.

But, it’s never too late for anyone who is thinking about it, especially as investment firms do more to attract women and simplify processes to help you get started. Too much jargon is also often seen as another barrier, alongside a lack of knowledge. And for those that do look, they say it is overwhelming and face choice paralysis.

How to start investing

It is understandable that you may feel nervous about investing, but once you start, you’ll wish you started sooner. While investments can go down as well as up, over the long term, data shows investments almost always return more. Here’s what to think about to get started:

• Start small. Some platforms let you start with a pound, but putting in a meaningful amount like £25 a month means you’ll build up a good amount and benefit from pound cost averaging – which means you can smooth out the ups and downs of the market. So, setting up drip feed for a set amount each month makes good sense.
• Tax-free returns: If you think you have too much in a cash account and do not plan to use it for at least five years or more, consider moving it to a stocks and shares ISA, where your returns are also shielded from the tax man and your wealth can grow at a faster rate. Currently you can put up to £20,000 in any given ISA, though there are rumours that Rachel Reeves may cap the cash ISA at £4,000 to encourage more people to invest instead.
• Start with an app: When picking where to put your money, try an investment app. They simplify the process and many of them will also ask you a series of questions to assess how you feel about risk and then suggest funds for you. So, all you have to think about is paying in each month.
• Set goals. Knowing you’re working towards something is always great motivation.