UK capital markets are being held back by low levels of retail investment, as an abrdn report shows the extent to which wealth is being skewed towards property and cash compared with some other G7 countries.
Looking at what percentage of people’s wealth is held in different kinds of assets outside of a pension, abrdn found “that, in the UK, adults hold the smallest amount in equities and mutual funds of any G7 country (8%).”
Much British wealth outside of a pension is “tied up in property (50%) and cash (15%).”
The UK has the third highest proportion of wealth “held in property and the third highest proportion of wealth held in cash.”
The findings were based on analysis of “government accounts from G7 nations.”
This imbalance has inspired abrdn’s ongoing ‘Savings Ladder’ campaign, calling on Government to spearhead “a culture that gets people on the ‘savings and investing ladder’, and to keep climbing – much like we see with Britain’s engrained ‘property ladder’ culture.”
One of the starkest comparisons is with the US. UK savers hold “double the amount of wealth in property than their American counterparts (50% of their total assets vs 26%) and are streets behind on investment wealth.”
In the US, outside of a pension people hold “almost four-times more of their wealth in investments compared with the UK (33% vs 8%).”
Xavier Meyer, CEO Investments at abrdn, said:
“Housing accounts for around half of household wealth in most European counties, reflecting a more concentrated asset allocation compared to the US. But when it comes to investing in equities outside of our pensions, the UK is streets behind many other developed countries, and particularly the US.”
They added:
“As we argue in our report, establishing a national culture of long-term share ownership will be crucial if we want to ensure healthy capital markets and shore up individuals’ long-term savings. We need a virtuous circle of good regulation, good products and both institutional and retail participation. Getting the UK investing is a critical challenge for society and, as an asset manager and investment platform owner, we aim to be part of the solution.”
Based on abrdn analysis of data from individual countries’ financial accounts.
Figures are the latest available data, “released in 2023.”
Some of these data points are accounted slightly “differently across countries, so we should be wary of looking at small differences and making strong conclusions.”
When comparing pension data, it is worth remembering “that there are variations in state pension benefits.”
UK adults “hold c£14tn” in total assets. abrdn analysis suggests that if UK adults held “as much of this wealth in investments as their US peers (33%) it could unlock up to £3.5tn for capital markets, including UK stocks.”
James McCann, Deputy Chief Economist at abrdn, said:
“Investing culture is a very real part of American life. As an economist who has lived and worked in both the UK and the US, I have seen first-hand the stark differences in attitudes between the two countries around participating in financial markets.”
They also mentioned:
“Equity ownership is more common in the US, where households hold a much greater share of their wealth in stocks and shares compared to their UK peers. Culturally, there is a greater focus on using financial markets to build financial independence in the US. I have been particularly struck by the prominence of the FIRE movement – Financial Independence Retire Early.”
Separate research, released as part of abrdn’s Savings Ladder Index earlier this year, suggests that one of the big factors “holding Britons back from investing is their low risk tolerance.”
It found that many UK adults (55%) have a “low risk tolerance” when it comes to investing, which would see them “holding their savings mostly in cash or bonds.”
The findings come as the debate continues “about how to inject new life in the UK capital markets.”
