New research finds millions of people in the UK could be heading for difficulties later in life, as poor understanding and low take-up of long-term investing risks their financial security. 

The analysis by online investment platform InvestEngine forms part of its new report, Building a nation of investors, and comes as half (56%) of UK adults have stopped saving or investing amidst the cost of living crisis.

Drawing on research across European markets, freedom of information requests, and third-party data, the analysis reveals that people in the UK lag behind others when it comes to knowledge and adoption of investing. 

Nearly half (48%) of adults in Germany, for example, said they would prefer to invest their money than save it, compared to only a third (33%) of adults in the UK. Specifically, just one in seven (14%) adults in the UK have a stocks and shares ISA - equivalent to 6.6 million adults. 

Germans were also more likely to have knowledge of different types of investment products compared to Brits, including exchange-traded funds (ETFs)**, with the number of Germans making monthly contributions to ETF saving plans projected to hit 20 million by 2026. 

Financial education in the UK is also lacking. More than half (55%) of adults in the UK – equivalent to nearly 26 million people – either disagreed or were uncertain if investing money offered better long-term returns than cash savings, despite evidence showing this to be the case. 

Nearly two-thirds (61%) feel their own education did not equip them with enough understanding of how to invest their money. Most (68%) said they had to self-teach when it came to managing their finances, with 73% of middle-aged adults (35-54s) saying they wish they’d started investing or saving at a younger age. 

With the Government keen to encourage greater long-term investing, InvestEngine is calling for ISA and financial education reforms ahead of the Autumn Statement on 22 November 2023. InvestEngine has written to the Treasury with its findings and to call for the following:

• A single, all-purpose ISA account for both cash savings and stocks and shares to be introduced, simplifying the process of moving funds into investments and avoiding confusion over managing multiple accounts. 

• Rename ISAs to ‘tax-free accounts’ to make clear the main benefits of using them in order to increase engagement. 

• Bring pensions and investments under a single ‘investing’ banner, recreating measures like those in place for pensions to encourage employers to make investing more readily available in workplace benefits, and working with the financial industry to achieve this.

• Boost financial education from an earlier age so more people understand the benefits of long-term investing and reducing cash savings as the default for many.

Andrew Prosser, Head of Investments at InvestEngine, said: “Change is badly needed, both in terms of our culture towards personal finances and in the role that industry and government can play in facilitating that change.

“When it comes to growing your wealth through investing, the best route for many will be via ‘little and often’ investing through an ISA, utilizing diversified and low-cost funds like ETFs. As the Autumn Statement approaches, we’re encouraged to see the UK government exploring ways to simplify the ISA landscape to make it easier for people to save and invest, but there needs to be further action to simplify the system and boost financial literacy. 

“This will be crucial if we’re to ensure more people can achieve greater financial security later in life.”