Uninvested Britain: a crisis of confidence

UK regulator, the FCA, has published its first Financial Lives Survey and it paints a miserable picture of Britain’s personal finances. This is partly down to a lack of knowledge, understanding and confidence. But it’s never been easier to invest, so now’s the time to learn more.

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Uninvested Britain

At a time when workers in the UK face a squeeze on their income as inflation continues to outpace wage increases, the Financial Conduct Authority (FCA) has found that half of UK consumers are reported to be financially vulnerable.

Lacking confidence and knowledge

The FCA’s survey of 13,000 consumers found that 46% of UK adults said that a lack of knowledge prevents them from making financial decisions, while close to a quarter have little or no confidence in managing their own money.

Confidence in financial matters comes with knowledge and experience. It is the responsibility, and also the best interest, of both the government and providers of financial services to provide consumers with the level of education that is required to successfully manage their personal finances. It is, unfortunately, far too easy to see why investing is neglected by a large proportion of the population.

Clear messages about some of the most commonly overlooked benefits of long-term investing, from why long-term investing trumps attempting to time your investment to perfection through to how investing on a regular basis can be beneficial when the stock market starts to fall, are not getting through.

The FCA’s survey also reveals that young adults feel the least confident about managing their money and are the most concerned cohort when asked about their own future financial prospects. People aged 18 to 24 rate themselves as the least confident and knowledgeable of all UK adults about financial matters, with an overwhelming 60% reporting a low satisfaction in terms of their own financial circumstances. For 25-34 year olds this is only slightly lower at 55%.

A widening divide

The younger demographic who claim to be unsatisfied with their financial situation are likely to be asset-poor, meaning they do not have investments in financial products or property. This group have missed out on large stock market and house price gains since the 2008 financial crisis, while a fortunate minority with assets have seen the value of their investments balloon during a period of abnormally low interest rates and unconventional monetary policy in the form of quantitative easing (QE).

QE was initiated by the Bank of England (BoE) in March 2009, creating hundreds of billions of extra cash which helped reduce borrowing rates for businesses and consumers, providing a much needed boost to the economy during a period of economic distress. There is, however, no denying that the extensive QE programme has ended up benefiting those holding assets such as bonds, shares and property.

QE involves a central bank creating cash to buy bonds (mostly government bonds) from financial institutions such as pension funds. With the cash from selling these bonds, these financial institutions then buy other types of bonds, shares or property, which seekto provide a higher return than the bonds that were initially sold to the central bank. Over time, the extra demand for these financial assets has helped inflate their prices, rewarding investors holding these assets handsomely.

However, for the many with relatively few or no assets, an eight-year era of highly profitable returns was instead a prolonged period of stagnant real wages and rent increases. As such, the widening of inequality in the UK between those with investments and those without should not come as a shock to policymakers.

Who to turn to

For a large number of people the prospect of setting aside a share of their take-home pay each month to invest is out of the picture when the ability to pay the bills each month is just about manageable.

For those who are lucky enough to be able to save on a monthly basis, but have not started to invest, the earlier you start the better when considering the number of benefits of investing regularly over the long term.

Yet the FCA found that the number of people who have started to accumulate savings in an investment product is very low. Only 5% of 35-44 year olds have investments totaling between £10,000 and £49,999 and just 2% have £50,000 or more, compared with a slightly higher 9% and 6% for 45‑54 year olds, respectively.

Even if an individual has the ability to invest, the FCA’s Financial Lives Survey reveals that a severe knowledge gap exists which spans not only age categories but levels of income too. Just 29% of adults claim to know enough about investments to choose ones that are suitable for their circumstances, without first consulting a financial adviser.

While 46% of people claim to know where to look for a financial adviser, the number who actually have one, or are able to afford one at an average cost of £150 per hour, will be much lower. Most independent financial advisors only look after clients with portfolios that exceed £150,000 in value.

Providers are starting to wake up to this, and it’s now easier than ever to start investing online in expertly-designed investment portfolios at low cost.

For example, IG Smart Portfolios consider your personal circumstances and attitude to risk to help find you a portfolio that is best suited to your needs and goals. You can start with just £500 and easily add funds on a regular basis to grow your pot of money over time to reach the target you have in mind.

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