RUTH SUNDERLAND: Investing in shares could help the productivity crisis
A common assumption is that the UK's productivity problems date back to the Great Financial Crisis of 2008. In fact, these woes are older than Facebook: they date back to the era of Friends, which aired from the mid-1990s to the mid-noughties.Nostalgia for that time is all the rage on social media, with mums posting pictures of themselves in their halcyon youth.They're more likely to be reminiscing about trying to look like Kate Moss in low-rise jeans than fretting over economic statistics. In terms of productivity, rose-tinted spectacles are justified, even if they are multi-focals these days.Labour productivity – national income per hour worked – grew at 2.5 per cent a year in the 1980s and 1990s, meaning living standards doubled in 28 years, according to new research from the Jobs Foundation.Generation X, born between 1965 and 1980, earned roughly twice as much as their parents in real term. Now, it would take nearly 80 years.This is a particularly British disease. In purchasing power parity terms the UK is 46 per cent behind Norway and trails Germany, the Netherlands and the US by around 15 per cent, according to Andrew Allum, one of the report's authors. Going for growth: One old-fashioned but brilliant route that should be shouted from the hilltops is regular stock market savingBusiness lobby groups report privately that overseas investors are already asking questions about the UK's political and economic stability following the local election results.But a chronic failure to invest in our own businesses is part of the explanation. The country is not short of capital: British people hold around £2.3trillion in cash, much of it silently eroded by inflation.Some 13.5m households have between £10,000 and £250,000 in net financial wealth on top of their housing assets, totalling around £800billion – large enough, Allum argues, to address the investment gap.If this could be mobilised from underneath the metaphorical mattress, the elusive productivity gains every recent Chancellor has chased might materialise, and ordinary savers would make better returns.The theory is sound, and so are the report's core recommendations for better financial education, pro-investor tax measures such as scrapping stamp duty on share deals and new products such as infrastructure bonds for small savers.In practice, people are reluctant to invest for emotional and psychological reasons that run deeper than lack of information, suitable products or even tax.Most of us work very hard for our money and, rationally, are afraid of losing it.Asset prices are moved by numerous factors, from the whims of Donald Trump to the weather. Expecting people to manage these complexities alongside jobs and families is unrealistic.Financial education alone is not the answer, especially for an ageing population. In Japan, pensioners suffering cognitive decline control around $2trillion (£1.5trillion) of assets, according to Sumitomo Mitsui Trust Bank.This money is prone to fraud, mismanagement and dormancy. For the economy, it is a recipe for low growth and poor capital allocation.Share investment should be democratised. But DIY is daunting, and only one in ten Britons has a financial adviser.One old-fashioned but brilliant route that should be shouted from the hilltops is regular stock market saving.People can put in as little as £25 a month through a platform to gain exposure to investment trusts and other funds holding a spread of assets. Drip-feeding neutralises the risk of being blown out in one fell swoop, so eases the fear factor.It could help the productivity crisis – and more of us might get rich slowly.DIY INVESTING PLATFORMSAJ BellAJ BellEasy investing and ready-made portfoliosHargreaves LansdownHargreaves LansdownFree fund dealing and investment ideasinteractive investorinteractive investorFlat-fee investing from £4.99 per monthFreetradeFreetradeInvesting Isa now free on basic planTrading 212Trading 212Free share dealing and no account feeAffiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.Compare the best investing account for you
