Hello and welcome to the Plain English Finance YouTube channel.
I’m Andrew Craig – Author of top-selling finance book “How to Own the World” and Founder of financial education website – Plain English Finance.com.
In the last few years I’ve written three books and published 90 detailed blog articles on our website but we thought it was about time we started sharing our output on video, primarily because so many of you have asked us to!
We tend to produce a couple of articles a month aimed at helping people to understand the world of finance and investment. In future we will be recording these as videos and adding them to this channel as well as sending them out by email as we have done for the last many years.
…If you want to make sure you are one of the first to see these videos please do click the subscribe and “bell” buttons!!
So let’s get started.
In this introductory video today, I wanted to take a moment to restate some of our investing “First Principles” given how important they are for your ability to become wealthy and, even more importantly as a direct result of that – for your life overall.
Our stated mission as a company is: “to improve the financial affairs of as many people as possible” …and we are deadly serious about that statement and that mission.
This mission is a reaction to the fact that effective financial literacy is incredibly poor all over the world – and particularly in the UK, where far too many people hold incredibly unfortunate and limiting beliefs about financial markets and investment.
There is a deep suspicion of money and financial markets amongst the general population in our country, perhaps as a legacy of the British class system: Too often money is described as “the root of all evil” and people say things like: “Cash is King” and “the stock market is a casino”.
These are all actually incredibly unhelpful and anachronistic things to believe, and I think it is time that British society in particular realised this, not least given how much better off we could all be.
Importantly, this isn’t something that is “a bit of a shame” or “mildly disappointing”. In our considered opinion it is one of THE biggest challenges faced by modern society, and all over the world, not just in the UK. (Truly).
This stuff really is that important – and never more so than today because a widespread improvement in financial literacy could be a key solution to many of the biggest problems so many people face as individuals and, by extension – the solution to many of the problems we face more broadly as a society, and which fill our newspaper headlines more than ever – including the current cost of living crisis, for example.
I have said it before, but my strong belief is that widespread effective financial literacy can be a kind of “silver bullet” – for individuals, and, more broadly, for society as a whole.
I made this case in detail my first book “How to Own the World”, but at the individual level, every person who learns enough about financial markets to become properly financial literate, and optimise their financial affairs as a result, very significantly increases the chance that they will become wealthy – and almost no matter how much they earn, over long periods of time at least. This is obviously fantastic for the individual concerned.
But this reality then has two powerful knock-on effects for society more broadly: First, every person who does this is going to need far less state support – for them, and for their dependents. This is good for government finances which are horribly challenged all over the world.
Secondly, when people become investors they are helping to provide capital for companies which are looking to solve real human problems and / or deliver human wants and needs.
I’ve spent much of the last seven years raising money for small, innovative British biotech companies, for example. This is actually an incredibly hard thing to do, in the main because there is far too little capital available to support those kinds of companies because far too few people are investing.
There are amazing businesses out there that could be curing cancer, working to treat autism, obesity or diabetes and stripping billions of cost out of the NHS – but because so few of us invest – too many of those companies struggle to raise the money they need to make progress scientifically and commercially.
A depressingly small number of British people know anything at all about financial markets or make use of them in an effective way.
In the UK, for example, fewer than 5% of the adult population have a stocks and shares Individual Savings Account (ISA) – one of the main tax-free investment accounts that a private individual in the UK might use to secure exposure to the stock market.
That is to say that something like 95% of the adult population are not knowingly or pro-actively investing in shares – something we will look at in more detail in a future video.
Crucially, this makes their lives immeasurably harder than they might otherwise be. It is also a massive challenge to our national balance sheet and to companies who need capital to do any number of fantastic things – not just in healthcare.
I am absolutely convinced that if a much larger proportion of us were to become effectively financially literate – and start investing - this would have enormous second order benefits for society as a whole – and would be a far more effective way of delivering a massive improvement in the UK than any government policy ever will. I believe that the same holds true all over the world, not just in the UK.
This is what I mean by a “silver bullet” for society as a whole – and is also why we have such a sense of mission about what we do.
At the basic level - Plain English Finance exists because of one simple truth:
Actually understanding finance is the single most important factor for your financial success.
The reason so many people struggle financially is, very simply, because they have never learnt enough about money or financial markets – or, in so many cases, anything at all.
To some extent this might seem like a statement of the glaringly obvious. We would argue, however, that although we all intuitively “get” the idea that most people don’t really understand financial markets – the sheer scale and reach of this problem and what it means for millions of us and for our society as a whole is far, far worse than nearly anyone realises.
Far too few of us realise that even if you are on a relatively low income – if you understand financial markets and take a series of – actually - reasonably simple steps, you can realistically expect to become a millionaire – over a long period of time at least.
Sadly many people are all too cynical about this idea – but it is true, nevertheless. I provided plenty of evidence for this argument in my first book but I’m by no means the only person making this case.
As long ago as 1996, US investment writers Thomas Stanley and William Danko showed that becoming wealthy is absolutely within reach for most “normal” people in their bestselling book “The Millionaire Next Door” and they also showed that most millionaires are actually just normal folk who have made the most of investment throughout their lives.
Perhaps even more instructive here is that fact that people on huge incomes who never learn about finance can and do so often end up bankrupt.
Famous examples of this include people like Boris Becker, George Best (and his son Callum), numerous pop stars including Kerry Katona, Shane Filan of Westlife and Lee Ryan and indeed all of the rest of Blue. Also businesswoman Karen Millen and TV-presenter Michael Barrymore. The list of such examples is very long indeed.
It is estimated that as many as 40% of professional footballers in the UK go bankrupt within five years of retirement, and the same is true in the US where a large percentage of NFL and NBA players suffer the same fate even though all of these people were earning six or even seven figures a year for many years of their lives.
Another amazing related stat here is the fact that as many as 70% of lottery winners go bankrupt within a few years of winning the lottery – according to the US National Endowment for Financial Education.
So the conclusion here has to be - that being wealthy is far more about knowledge and habit than it is about income.
To a great extent, the richest 1% of people in the world are, quite simply, the most financially literate 1% of people in the world… truly.
We created Plain English Finance with a mission to solve this problem for the other 99%…
Far too many people think that stock market investment and financial markets are “for rich people” and not for them.
We believe that this stance gets correlation and causality the wrong way round. Investment isn’t “for rich people” it is just that you are far more likely to become wealthy if you learn enough about financial markets and become an investor. There is at least two centuries of evidence that this is the case.
Crucially – this has never been more important than it is today.
Millions of people are sleep-walking into an impoverished future.
The average British salary today is around £27,000.
To generate that level of income when you retire you will need to have saved at least £500,000.
Estimates vary but the average British person today actually has about 1/10th of that in their pension pot at around £50,000 – enough to buy a tiny income at retirement.
At the same time, the government is incredibly unlikely to be able to afford to pay most of us a liveable income in retirement.
To explain why this is: The UK state pension was introduced in 1909 for over seventies when hardly anyone lived past the age of fifty! In fact – average life expectancy at the time was 47 years old!
It was very easy to fund the pension requirements of a tiny minority of people who survived past the age of 70 back in 1909.
Most people born today are likely to live to 90 or even 100 and beyond. So you’re going to need to fund forty years or more after you stop working.
As a result - unless you are already very near retirement, you are entirely unlikely to get anything like enough to live on from the government to cover a possible four decades of "retirement" – because they simply can't afford it.
It won’t matter whether Labour or the Conservatives are in power – the simple fact is that Britain – and many other countries – can’t afford to pay a living wage to the number of people who want to stop working in the next few decades.
This reality is a big part of why I describe this as one of the biggest challenges faced by modern society.
This is all pretty scary stuff and all really very depressing.
Happily, however, all is not lost.
The good news is that we can do something about this if we are willing to learn a little about investment and financial markets.
Even someone on a relatively modest income can aspire to save a big six-figure or even seven-figure amount by the time they want to retire - if they learn a little about finance!
The main reason for this is because of the power of compound interest.
In my first book I showed how £5,000 (and only £5,000) invested on the day a child is born could turn into around £1 million by the time they could first take their pension at the age of 55, with no further investment. As I said in the book:
“…if a grandparent or wealthy relative were to invest £5,000 the day a child is born, and that investment were to achieve 10 per cent per annum until the child retires, with no further investment at all, that initial sum would have grown to around £1 million by the time the child turned 55….”
Of course, a 10% return may seem ridiculous to many people - until you consider that in the century from January 1923 to the end of 2022, the S&P index of American shares returned "10.34%" per annum on average (that is 7.25% a year adjusted for inflation).
Similarly, in the UK market, closer to home, in the 66 years from 1955 to the end of 2021, the Numis NSC 1,000 Index of the smallest companies in the UK stock market returned an average of no less than "16.3%" per annum (that’s 11.3% after inflation. It is perhaps worth point out that this is around four times the real return of UK house prices over the same time-frame).
Those sorts of investment returns are enough to make millionaires of “normal people” over a lifetime of considered investment.
There is a great deal more to it of course – particularly the importance of the volatility of those returns – something we will look at in a future video - but the broad point is that stock market investment over a very long period of time can deliver outcomes that most people still have no idea are even possible.
And for society more broadly, if enough people become investors, there is a much higher chance that we can create the wealth we need to fund so many of us in retirement.
So that’s all for today.
I hope you found this video vaguely useful.
If you did, please do hit the subscribe and bell buttons to make sure you get our videos in future – where we are going to go into more detail on these sorts of topics.
…and on what you can do to optimise your financial affairs.
Until then – I wish you the very best!