You can’t save money without making it

This article was first published in The Critic.

Since as far back as Margaret Thatcher, successive governments have fitfully attempted to nudge British citizens away from simply saving their pennies and towards investing their pounds.

Nigel Lawson’s Personal Equity Plan (PEP), introduced in the 1986 budget, was an early attempt to encourage equity ownership throughout the country. The Conservative-Liberal Democrat government of the 2010s introduced the Seed Enterprise Investment Scheme (SEIS) to encourage individuals to invest in start-up companies. 

Even the current Labour government, through the proposed cutting of the Cash ISA allowance from £20,000 to £12,000 is an example of forcing the issue. 

However, banks and building societies were quick to communicate their fears that Labour’s proposed shift may destabilise household finances. The overall backlash was immediate and depressing for anyone who knows the value of investing.

So, when Martin Lewis, the cautious financial guru synonymous with cash ISAs, emergency funds and Premium Bonds, recently devoted an entire programme to a “beginners’ guide” to investing rather than saving, there was surprise on all sides.

For average British viewers, Lewis’ core audience, the idea that compounding returns on equities might dramatically outperform cash over the long term came as a revelation. Those more switched on, once they’d gotten over the shock, began swift criticism on social media: “Thirteen years too late!”, “You’ve cost people millions!”.

Some of this anger was clearly over the top. But it was hardly unjustified — not because Lewis was negligent in his years as the self-styled “Money Saving Expert”, but because he is better understood as a symptom rather than a cause of Britain’s deeply ingrained financial attitudes.

Britain has long been a country that instinctively prizes safety over growth. Unlike countries where investing is viewed as a normal part of adult life — most obviously the United States — British savers have historically favoured low-risk, low-return options. Martin Lewis did not invent this instinct — he simply explained it better than anyone else and helped to ingrain it further in the national psyche.

Lewis’ recent turn towards investing may therefore be less of a personal volte face, but the beginning of a long-overdue culture shift — the canary in the coal mine of Britain’s risk averse personal finances.

The most striking way to frame the cultural gap between Britain and the US, is through overall levels of participation. According to research from Manchester Metropolitan University, only 23 per cent of Britons have invested directly in the stock market, compared with nearly two-thirds of Americans (when excluding workplace pensions). Even if broader definitions are included, such as funds and trusts, Financial Conduct Authority data shows that only 35 per cent of UK adults hold any investment product outside property or cash.

Where wealth sits paints an even starker picture. British adults only hold around eight per cent of their personal wealth in equities and mutual funds outside pensions, the lowest share in the G7. Americans hold around four times that amount. And we can’t just blame the fact that our households are poorer than the Yanks’ — the gap existed even in the 1990s, when income and living costs were far more comparable.

For decades, mainstream British financial advice has read like an egg-sucking health and safety note about boiling water: avoid unnecessary risks, prioritise security and most importantly, make sure you don’t get burnt. 

This suspicion of speculation has deep historical roots. The country that pioneered the Financial Revolution after the Glorious Revolution, founded the Bank of England and introduced government bonds and joint-stock companies, also suffered the first great stock market disaster in history. The South Sea Bubble of 1720 wiped out fortunes and led to the amusingly named Bubble Act, which severely restricted the formation of joint-stock companies for more than a century. 

In contrast, participation in the US financial market grew steadily from the mid-nineteenth century. During the American Civil War, financier Jay Cooke marketed government bonds directly to ordinary citizens, embedding the idea that markets were not the preserve of elites.

In the twentieth century, this hardened into policy. Employer-sponsored retirement vehicles such as 401(k)s and IRAs channelled millions of Americans’ savings into equity markets by default. Owning shares became synonymous with adulthood and progress. Volatility was accepted as the price of growth.

Britain’s own mass-participation schemes, which have included War Loans, National Savings campaigns and later Premium Bonds, failed to make that leap. And as a result, British households came to rely overwhelmingly on cash and property. 

Today, about 50 per cent of British household wealth sits in property and roughly 15 per cent in cash. In the United States, property accounts for closer to a quarter of household wealth. This preference is further enforced annually when looking at contributions to the different types of ISAs. In the 2023-24 tax year, households deposited a record £103 billion into ISAs, with cash ISAs capturing about 70 per cent of this amount.

Premium Bonds perfectly capture the British instinct. They pay no interest, rely on the whim of a random number generator, quaintly named ERNIE via acronym, and are explicitly backed by the state. Around 63 per cent of holders have never won a prize, and yet they remain wildly popular.

Over time, this has produced a subtle dependency culture. Responsible money management is understood to be a game of selecting from a menu of approved savings products, rather than taking ownership of long-term growth.

Unsurprisingly then, investing is widely perceived in Britain as risky, complex and intimidating. Surveys consistently show that fear of loss and distrust of markets are the main deterrents. A significant minority of adults have never heard of a Stocks & Shares ISA, or do not understand how it works.

In America, investment is simply a feature of working life. Media coverage, workplace pensions and patriotic narratives about “owning a slice of American enterprise” have normalised equity ownership for generations.

In Britain, risk is equated almost exclusively as loss, a perception reinforced by regulatory warnings that emphasise downside without context. The long-term reality of compounding returns rarely features in public discourse and the idea of “opportunity cost” is entirely alien.

Millennials and Gen Z, however, are slowly bucking the trend, aided in part by app-based investing and a realisation that the status quo will never deliver for them as it did (and still does) for their parents and grandparents. 29 per cent of Gen Z and 35 per cent of Millennials are investing more than they did a year ago, compared to just fifteen per cent of Gen X and five per cent of Baby Boomers. This is promising, but we are still far behind our transatlantic peers.

Lewis’ recent pivot, then, could indicate an inflection point as more investment-curious Millennials and Zoomers reach an age where they need to manage household finances.

If the tide is changing, however, it will need far more than a television programme to take full effect. If we want to make good on a growing openness to investment, it will require sustained financial education and a reframing of investment not as recklessness, but as an opportunity. We must stop being money saving experts and instead become money making ones.