It’s fair to say that the US is home to one of the most investment-savvy populations on the planet. 

It’s also fair to admit that Britain is a little different. When the US S&P 500 or Dow 30 index hits a record high, it’s likely to form part of a boast by the US president of the day within hours. It becomes a national news story that slots into the breakfast news the following morning. 

In contrast, if the FTSE 100 broke through a previous high, this is unlikely to make any headlines outside the relatively obscure business and finance sections of the newspapers. 

Stock-picking is something of a national obsession and ‘dinner table topic’ in many circles. In the UK, house prices are much closer to our hearts. 

So why is this? Why do US nationals love their Roth IRA and 401(k) plans with a level of passion that we don’t show for the best Stocks & Shares ISAs or Self-Invested Personal Pension (SIPP)?

Why don’t brits invest in shares at the same rate or level as Americans?

First, we must look at the facts and determine whether this anecdotal hypothesis is actually true. Brits could be simply more private about their financial affairs and be secretly investing in their droves. This alone could explain the apparent absence of investing from the national discourse.

Facts about UK investors v US Investors

Finder.com hosted a survey in 2020 which revealed that only 33% of Brits owned shares. This figure likely excludes occupational pensions and other stakeholder defined contribution schemes. When it comes to pro-active investing, the stats show that 2.2m people have a tax-efficient Stocks & Shares ISA in the UK, which represents a paltry 3% of the population. 

This chart from Statista shows that in contrast, over 50% of Americans are invested in the stock market. In 2020, the precise rate was 55%. 

Therefore the research suggests that the theory that the US has more stock market investors is well founded. Let’s consider the cultural reasons that could be driving this trend. 

Why don’t we invest as much in the UK as the US?

1. The US stock market has performed better 

Over the last ten years, the US stock market (as measured by the S&P 500 index) has increased by 284% (2011 – 2021). The comparable figure for the UK is just 35%. Any chart which compares the two side-by-side is an embarrassment for the UK index of some of its top 100 listed companies. 

Therefore to place oneself in a potential investors shoes; if an investor on each side of the Atlantic were to glance at their most relevant stock market chart, they would see a dramatically different picture of success. 

For similar reasons, stories of friends and family who have made gains in the stock market will also circulate around US and act as encouragement for those who haven’t dipped their toes in the water. A derth of stories will exist in the UK if investors have allocated a large part of their investment portfolio to UK large-cap equities.

The expert view here is that the difference between the performance of the indices is not as stark as it first appears. US companies don’t pay particularly attractive dividends – their corporate parent companies prefer to hold onto cash and use it to expand the business – boosting the share price. Therefore US investors don’t receive much income from equities and largely receive their returns through capital gains (which are reflected in the index value). 

Over in the UK, companies are more keen to pay reasonable dividends to investors. This inhibits further growth, and thus index values, but that cash paid to investors should not go uncredited. Investors who invest for an 8% income yield, for example, can simply use that income to buy more shares.

When you factor the effect of dividend payments into the FTSE 100, (known as the FTSE 100 Total Return Index), the index has actually returned 97% over the ten year period. This may not match the S&P 500 for scale, but still demonstrates the reward of remaining invested over a long period. 

Unfortunately, this nuance is not common knowledge amongst casual investors. 

2. US history and culture elevates acts of risk-taking and entrepreneurialism

From the gamble of migrating west as settlers to the gold and oil rushes of the 19th century, the US has plenty of stories of plucky and determined upstarts moving to a new place to found a business, speculate and hopefully strike it rich. (Read more: is investing gambling?)

The US also loves small businesses, particularly in rural areas and small towns, where the locally-owned stores are part of the community and ethos that makes people proud to live where they do. Entrepreneurship books are frequent buys for their own use or even as gifts to children or friends.

The UK has a more collectivistic outlook and has embraced big business. Only 1.8% of food groceries are purchased at small or independent food shops in the UK. This figure is 6 times higher at 11% in the US. Supermarket giants such as Tesco (27% share) and Sainsbury’s (15% share) have been embraced by Brits as efficient, useful and at the same time, thoroughly British.

The US environment creates a mindset where citizens feel that staking their own sums of money in the stock market is ‘the done thing’. 

It is easy to imagine the parents of a young British investor sharing caution and warnings rather than encouragement. Britain has a conservative political lean when you look at the national politics, as does the US. But unlike the US, this conservatism seems to spill over into financial decision-making. 

3. Financial journalism focuses extensively on non-investing options

If you pick up a British newspaper or magazine and turn to the money section, you’ll bump into articles about: 

• How to save money
• Deals & how to spend less
• Managing your credit cards
• Budgeting

Rarely does buying shares or investing in property feature prominently. 

In contrast, the US has a great deal of financial and business journalism. Consider Forbes, Fast Company, Fortune. Business books also sell like hot cakes in the US – people can’t get enough! In the US, you can turn on a news channel such as CNBC and watch hosts discuss the investment merits of listed businesses from an investor perspective. No equivalent channel exists in the UK.

I can understand the hesitancy to cover investing in mainstream journalism. Investing isn’t for everyone, whereas generic articles about saving money with a bank or spending less have universal appeal. From a legal risk perspective, magazines don’t want to be seen to be giving financial advice or legal advice. This acts as a nudge towards safer topics and less editorial about the stock market. 

The Financial Times is still going strong, boasting a large UK and international readership. It claims that 7m Brits and 8m Americans read an article each month. The Times and the Sunday Times and Telegraph newspapers also have strong business and personal finance sections. But the more specialist titles are not widely read. Readers of the FT will very likely fall within the 3% of UK citizens who have a Stocks & Shares ISA. 

The ‘person on the street’ is far more likely to be reading about how to make £100 by switching your bank account than how to invest £1,000 and potentially earn £1,000 in returns over the next decade. 

Some counterpoints to why Brits aren’t investing

Auto-enrollment is bringing more Brits into the market

There are some more encouraging signs which suggest that investment is on the up in the UK. 

Employers are now obliged to ‘auto-enrol their employees onto a workplace pension scheme and most also provide matching for contributions up to a limit. This nudge method is encouraging millions of workers to use a pension who wouldn’t have normally had the idea or motivation to step into the unknown and set one up. 

Pensions don’t have to be invested in the stock market, but the default investment selection for most pension schemes will include a healthy allocation of equities, which means that auto-enrollment is effectively getting British workers invested in the stock market by default. 

Stockbroker accounts are as tax efficient as ever

The Chancellor may have announced the intention to tax more dividend income over the last few years but if you understand how investments are taxed, you’ll know that this won’t affect most savvy investors who have chosen the best stockbroker accounts for tax efficiency.

That’s because a Stocks & Shares ISA offers tax-free dividends, meaning that changes to the personal dividend tax rates wouldn’t apply to dividends paid by equities held within the tax-free wrapper account. 

In fact, relative to the US, the UK has a simple and generous tax regime for private investors. So this is certainly not a factor driving the wedge between the two countries. 

I hope you’ve enjoyed this opinion piece on why Brits don’t invest as actively as their US counterparts. Please leave a comment below if you agree or disagree.