In the UK I’ve noticed a worrying lack of appreciation for how our own personal finances work. An absence of knowledge on the investment tools we could take advantage of, and a lack of understanding and knowledge as to how the UK economy operates; and what it means for us and our day to day lives. We do a lot of moaning but don’t do a lot about it! So come on Britain, get financially educated!
Let me explain. Us British regularly poke fun at the Americans for their lack of geographical knowledge of anywhere outside of their own vast 50 states. Did you also know that the area of the US is 9.2 million square kilometres, compared to Europe’s 3.8 million? You’ve all heard the story, that when asked what’s the capital city of the UK, Americans will reply.. “Paris?” But how many of you could in conversation answer: what is the state capital of Florida?
Well the answer is Tallahassee – I bet not many of you knew that! My point is – why should the American’s need to know? They’re the world’s biggest economy and are very comfortable in what they do.
What am I driving at here? I’m going to flip this point on its head. I’ve spent a lot of time working all over America – North, South, East, West; in towns, cities, universities, big and small businesses, as well as spending time there on holiday. As a trader and financial markets expert of 20 years, I was amazed to find out how educated the ‘normal’ American is in regards to their understanding and interaction with investments. You can go down to the local bar and have a great conversation on futures and options trading. There are prime time investment shows on TV and radio. Housewives are opening up their day trading accounts; taking an educated punt on all sorts of stocks and shares. In schools they have lessons on financial markets, trading and investments. There are investment gurus, trade shows, training and educational courses everywhere. The average American wants to maximise the bang they get for their buck! They are very investment savvy – far more so than us Brits!
Since starting my own business and dealing with people outside of the bubble of the City of London, I am shocked to discover the serious lack of knowledge UK citizens (and even finance professionals!) have about financial and investing matters. I’ve asked professionals to name the most popular Stock Indices worldwide- and they couldn’t. You’d be surprised how many didn’t even know what the FTSE100 was! Asking people outside of the professional sphere also drew blanks, even on the basics of stocks and shares; how you’d find / use a broker, what investment opportunities are available to them and did they understand them?! So wouldn’t the Americans be well within their rights to poke fun at us Brits for our lack of financial investment awareness?
The credit crunch of 2008/09 sort of woke the UK up to the fact that there was more to finance than just filling up our credit cards to the max and getting the biggest possible mortgage we could lay our hands on. By the time of the crash, the debt to income ratio in the UK stood at 160% – a growth of around 100% from 1999 to that date. (Bank of England). With credit lines cut post-crash and money harder to get hold of, you would assume that this would have spurred the UK to change their financial habits. In some respect there was a shift of thought, but from what I can see we’ve all gone back to our old ways of running debt and spending. We’re not thinking how to save, invest and maximise our cash.
The government needs to put financial education more strongly on the curriculum!
I also teach to schools and universities and this lack of understanding is also evident within this demographic. The government needs to put financial education more strongly on the curriculum. What’s ironic is that the UK almost solely relies on the Financial Services sector to keep it afloat as a major power, and is one of the true global financial centres, also making this sector one of the UK’s biggest employers! Through the media and globalisation we can’t but now help get more involved with our own personal finances. But here in the UK we still employ a bit of the Ostrich mentality. It is a deep seated problem that needs to be addressed.
We can’t moan at our banks for not paying us enough interest on our savings, or the pension fund guys for losing our money, or having a lack of direct control over our financial future if we are unaware that there are alternatives out there – and are unwilling to take control and learn what these are.
It all starts from your personal risk pyramid:
If you’re financially savvy, you should be filling up the different layers of the pyramid from the ground up. We are all probably aware of how to fix the base level 1; most Financial Advisors should be able to help you here and hopefully into the second layer ‘safety and income’. It’s when you start moving up the pyramid that things start to get a bit cloudier. Layers 2, 3, and 4 are where we struggle to grasp our options here in the UK. All are very straight forward financial tools designed to increase your wealth, that have been around for many years. As you can see, the base of the pyramid is the widest point, and like any Financial Advisor will tell you – this is where you should allocate most of your spare capital. You’ll notice as you climb the pyramid it gets thinner, and by the time you reach the 4th layer ‘speculation’, you should be putting the least amount of your funds there.
Why? Because as you can see from the arrow to the left of the pyramid, these options are of a higher risk to your capital but give you the best chance to maximise the bang you get for your buck. So you need to construct a sensible investment portfolio. (Please seek advice from your Financial Advisor first before engaging in any of these activities)
Come on Britain get financially educated!
As Gordon Gekko said in the film Wall Street (1986): “Knowledge is power!”
Coming back to my American point, the private investor in the US is happy to engage a lot more heavily in layer 4 ‘speculation’, and reap the rewards that piece of the investing jigsaw offers. Why? Because it is easier for them to do so and they are much better educated than us in trading stocks, options and more complex products. Yes, they have also made their own mistakes i.e. sub-prime, but the culture of understanding around finance is very different to here – and one we could learn from. In the UK we have these types of products available to us, but quite often we need a lot of capital to access them. We don’t know how to get to them or we are simply scared of them due to our ignorance. So what could the ‘retail investor’ in the UK utilise in this part of the pyramid?
Spread betting: an underutilised legitimate investing tool.
We do have a great under-utilised fully FCA regulated financial tool in the UK that isn’t available to many parts of the world; which would give you access to stocks, shares, currencies, commodities, bonds and interest rate products around the globe almost 24/5. It also doesn’t come with high charges or minimum account sizes, it gives you complete control over when and what you’re investing / trading in, and currently gives you tax free returns in the UK, allowing you to take point of view on profiting from shares / markets falling, as well as rising – which is pretty unique and certainly something you can’t do share dealing!
Almost 100,000 people placed a spread bet in the UK last year, making it the most popular trading method in the UK (Money Week 16th Oct 2015), and still it is little known or used outside of London – where 80% of spread bettors live. Trading your own account – utilising Spread Betting – would be a great complement to your standard share dealing portfolio (it also doesn’t come with some of the administrative burdens, or capital gains tax or stamp duty for that matter) – or a complement to your property portfolio or even just as an additional investing tool to allow you some more financial flexibility over your finances.
The key though is education.
It is about understanding and managing the risks….
As I have mentioned before – education is key. You can’t just jump straight in to these sort of investing activities. You will get your fingers burned. It is about understanding and managing the risks. Once you have overcome this hurdle, it opens up a whole new world of investing opportunity, control, and freedom over your personal finances.
Simply: either seek advice from your Financial Advisor or get educated. There are now many local education courses available at schools, colleges, universities, private training companies and mentors that can take you from complete novice to financial mastery depending on where you want to take your financial journey. I recommend you find one.
Here at The Stop Hunter I utilise my 20 years financial markets trading and risk management experience and education to teach private individuals how to trade the Financial Markets: currencies, stocks and shares, commodities; whether that be through the medium of Spread Betting or some other more traditional framework. My goal is to educate those who are interested, so they can better interact with the fourth layer of the pyramid.
What should you look for in your financial educator / mentor?
- Holds the right knowledge / qualifications
- Has actually been a ‘real’ trader – very appropriate if you want to get involved with the 4th level of the pyramid!
- A good communicator
- Has a commitment to their students
- Has the time to give their students
So if you want to find out more about our educational products and services, utilise our free resources, or follow us on Twitter then please do get in touch:
Email: [email protected]
So come on Britain – get educated. You’re missing out!
(Note: This blog article does not constitute investment advice. Always seek advice from qualified and regulated professionals before engaging in any investment activity)