‘How I got them to invest in shares’
Parents are trying novel ways to engage children in the long-term benefits of investing in the stock market, writes Laura Suter
How do you encourage younger generations to invest in shares? It’s a problem facing not just parents but policymakers, too. A growing mistrust of the stock market, coupled with a preference for cash and property, means younger savers are less likely than their parents to own shares. That could hold back the returns they need to generate on their long-term investments.
In the Sixties more than half of the shares traded on the London Stock Exchange were owned by individual investors. Today, with the rise of institutional and overseas investors, that figure has dropped to 12pc.
Savers’ use of funds, such as unit trusts, has grown over the period – but not enough to fill the “savings gap” identified in a succession of studies.
American data highlight a similar “lost generation” of shareholders. Figures from Gallup, the polling firm, suggest that adults between the ages of 18 and 34 have been deterred from stock market investing by the 2007 banking crisis and shares crash. Less than 40pc of that age group are invested in the stock market today, compared with 52pc in 2007.
“Confidence in the stock market and levels of financial literacy have clearly suffered, and investment rates lag significantly behind the overall rebound the market has made,” says Gallup.
Sheila Nicholl, head of public policy at asset manager Schroders, blames the trend on “death by paperwork”, pointing to the increasing regulatory burden that forces investors to wade through forms and disclaimers.
Ms Nicholl, a former director of conduct policy at the City watchdog, says this “only serves to disengage” savers. But she thinks there is a wider malaise in Britain: “We have a culture and attitude that it is OK not to understand money. Until we get to the stage where it is socially unacceptable to say we don’t understand money and investing, we will continue to have this problem.”
Savers’ preference for cash over shares is also worrying. While around £80bn is saved in Isas each year, three-quarters of that is in cash deposit accounts.
For Junior Isas, which are specifically for children (see box) and where the time horizon is often very long, a huge 60pc is in cash.
Darius McDermott, of Chelsea Financial Services, the fund shop, says: “A one-year-old should not be invested in cash – they should be invested in the stock market via a fund.” Those putting £26 a week into a Jisa could end up with £34,810 after 18 years, data from Fidelity, the fund shop, show. This is based on just over 4pc growth per year – a modest expectation of stock market returns after costs, based on decades of historic returns. Cash delivers far lower growth.
Some parents are trying novel ways to encourage their children to take an interest in the stock market. “When we watch a Disney film my daughter asks if it’s good for her shares,” says Jane Sydenham, who has a senior role in an investment firm.
Ms Sydenham, 49, had already built up a range of investments in funds and investment trusts for her children, Rohan, 13, and Anya, 11. Four years ago she decided she wanted them to be more involved, so she bought shares in entertainment group Disney and online retailer Amazon.
“I bought Amazon because they see those brown packages coming through the door and Disney because they are consumers of all things Disney,” says Ms Sydenham. She showed the children graphs of share prices and explained to them the relationship between profits and prices.
“My daughter and I went to see the recent Disney release Moana. When she saw the Disney logo, she said: ‘This is good for our shares isn’t it?’
“She could relate that sales for a company equals good news for shareholders.”
Other parents appear to be taking a similar approach, according to Britain’s biggest broker, Hargreaves Lansdown. Many of the stocks held in Junior Isas on its platform are similar to most adults’ portfolios – Lloyds, GlaxoSmithKline and Shell – however, a look at the foreign companies held shows some more child-recognisable names. Among them are Apple, Disney, Amazon and Netflix.
From the point of view of investment returns it has not been plain sailing for the Sydenham family. The Amazon shares rose nicely after they were first purchased, but then fell. “My son was looking up the share price quite regularly and he was quite angry with me. He said: ‘You should have sold it and taken the profits’,” says Ms Sydenham.
“I had to explain that you invest for the long term and it is still a good company. But he was disapproving for quite a long time.” The shares have since doubled, helping drive home the point about patience.
The majority of the children’s savings is not held in individual company shares. The bulk is spread across funds, which give far greater diversification. “Most of the time you’d invest in a managed fund for a child, but that is not very engaging, it is too abstract for them to understand,” says Ms Sydenham.
“In the end it’s important they have some understanding that if you are patient you’ll benefit. If they can relate it to something they can touch and see, and businesses where they are customers, it means something.”