How can we encourage more consumers to invest in the stock market? What role could technology play?

05 July, 2023Rohan Noble

Rohan NobleIn the winning essay of the 18-19 age group in our Young Financial Journalist competition, Rohan Noble assesses the most impactful way to encourage different demographics to invest responsibly in the stock market.

Which demographics are investing in the stock market?

With the days of stock market dealings being limited to the financial elite long gone, trading amongst the public has increased in the UK. However, currently, just one in three Brits own shares. The advent of online and app-based platforms, such as IG and Freetrade, has democratised trading meaning a wide range of people now invest in the stock market. However, studies illustrate a pronounced gender gap in investors, with women being 16% less likely than men to make investments.

Evidence also points to substantial differences between higher-income and lower-income households' investment strategies. While the latter prefer to acquire commodities and fixed-income assets like gold and government bonds, higher-income households invest heavily in stocks and real estate. Given these statistics, promoting stock market investing to young women and lower-income households in the UK is likely to encourage more consumers to invest.

Financial literacy and the gender gap

In March 2022, The Royal Mint released its 'Gen Z Investment Report', giving an insight into the investing habits of young people. It stated that 23% of young investors followed Financial Influencers, or ‘Finfluencers’. These are individuals using social media to give general advice on stock trading and investing. However, most Finfluencers are male and generally cater to the male audience. While prominent female Finfluencers exist, such as ‘Clever Girl Finance’ and ‘This Girl Talks Money’, overall, financial advice for women is underrepresented. Addressing this gender disparity is highly likely to increase stock market investing among women and young girls.

Stereotyping investing as a ‘man’s world’ is incredibly dangerous as it can dissuade young women from developing financial literacy. Understanding financial jargon is critical when making informed choices regarding financial decisions. Therefore, young women are an essential group to target when promoting stock market investing. YouTube advertisements are potential nudges which can encourage women to invest.

Statistics from The Marketing Society illustrate a significant increase in the number of empowering advertisements on the YouTube Ads Leader board from 2014 to 2015, which correlated positively with the time women spent watching ads on YouTube. Inspiring ads clearly resonate with women as they challenge gender stereotypes and motivate women to strive towards their goals. Therefore, by using ads demonstrating the strength of financial literacy, women are more likely to research stock trading and potentially invest.

How to encourage underrepresented groups to make sensible investment choices

Cultivating the idea of investing among lower-income households may prove challenging as they often have less disposable income in comparison to higher-income earners. With most of their earnings going towards essentials such as food and energy bills, little is left to invest. Furthermore, this demographic is far more risk-averse regarding investing, preferring the security of savings accounts rather than risking potential loss trading in stocks.

According to UK savings statistics, 34% of people have less than £1000 in savings. Besides limited funds, a significant factor explaining this demographic’s lack of investment is in fact poor financial knowledge. A staggering 39% of adults (20.3 million) lack confidence in handling their money, largely due to limited financial education during school, college and/or university. Therefore, improving financial literacy at the grassroots is vital to increasing stock market investing among lower-income families.

A potential solution to this would be for the government to introduce an education programme highlighting the benefits of stocks and shares ISAs in disadvantaged regions of the UK. Educating people about the 9.64% average annual rate of return, and explaining how inflation actively devalues savings, will encourage low-income households to invest in the stock market. By disseminating this message via popular social media apps such as Facebook, Instagram and TikTok, the government can directly inform the target demographic. Additionally, advertisements on digital billboards in the locality will help to reach the intended audience.

Financial education and investment decisions

However, to truly address this problem in the long run, incorporating personal finance education into the national curriculum would prove beneficial. Compulsory personal finance lessons for students aged 14–18 years would make young people aware of their future financial options, possibly increasing stock market investing nationwide. Simultaneously, improving financial literacy across the country will boost the money management skills of future generations.

In summary, by understanding the needs of underrepresented groups investing in the stock market, we can accurately gauge an effective approach to persuade them to invest. YouTube advertisements, social media platforms and the education system can all play integral roles in promoting the act of investing among women and low-income households. However, while we can utilise prompts and teaching to endorse the benefits, a secure economy with stable rates of inflation and economic growth is fundamental in sustaining consumer confidence and nurturing stock market investing. 

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