Demystifying and simplifying investing to build better financial futures

By Estelles Castres, Country Head of France, Belgium, Luxembourg and Monaco, BlackRock

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

From an early age, I have been driven by a desire to understand the economic and financial systems that shape our world. This curiosity has guided me throughout my career, aligning with our Chairman and CEO Larry Fink's philosophy of being a perpetual student of the markets. I took my first steps in the financial markets to finance my studies – and this experience inspired a lasting dedication to demystifying financial investment for others.

I firmly believe that mastering a few simple investment concepts could help individuals build long-term savings to take greater control of their financial futures. But this isn't just a personal mission – it's a critical challenge for Europe as a whole. Empowering Europeans to invest is vital to enhance the continent’s economic resilience and provide additional funding for its sustainable and digital transitions. Unfortunately, barriers to investing remain substantial, starting with prejudices about investing and common misconceptions about finance.

A recent Eurobarometer survey highlights this problem starkly: only 18% of EU citizens display a high level of financial literacy, with significant disparities across Member States.¹ It also reveals that only 45% of Europeans understand how compound interest works and just 20% grasp the impact of interest rates on bond prices – basic concepts for effective personal finance management.

These findings underscore the need to improve financial education, but also to simplify investing, making it more accessible for people from all walks of life. To better understand these issues at a local level, we partnered with OpinionWay to conduct a comprehensive survey in France.² Our goal was to analyse how the French envision their financial future and look at the levers they use to build their financial security. This allowed us to delve into the attitudes of French citizens towards investing, identify the barriers they face and uncover what might encourage them to take the plunge.

One of the key findings from our French survey is that the majority of respondents recognise the importance of savings in building their financial future. In fact, 71% of them see savings as a cornerstone of financial security. Encouragingly, 68% have either already invested or plan to invest, with this trend more pronounced among men and younger individuals. This indicates that many in France view investment as an attractive tool from the earliest stages of financial independence.

However, despite this appetite, significant psychological obstacles remain. Many people find financial products overly complex and associate investing with excessive risk as well as the need for substantial sums of money. A staggering 81% of those surveyed fear losing everything. Moreover, the average respondent believes that at least €8,000 is required to start investing.

These fears are often based on misconceptions. Most people have the ability to master basic financial concepts and simple investment principles – such as investing regularly and diversifying one's portfolio – which in turn could help reduce risks. Regular investment allows individuals to start with small sums and benefit from a long-term horizon, which is crucial for financing major life goals. Diversification, on the other hand, can help protect against market volatility by spreading risk across different asset classes, sectors and geographies.

The OpinionWay survey also revealed a strong desire for simplicity. As many as 83% of respondents said that an easy-to-understand investment solution would encourage them to invest, while 81% would be motivated by a solution that is simple to operate, and 71% by the ability to invest online.

Fortunately, such solutions already exist. For instance, exchange-traded funds (ETFs) offer a transparent, straightforward, affordable, and liquid investment option – as their composition is known, they track stock market indices so you can keep fees low, and they can be bought and sold anytime during market hours. ETFs provide diversified access to a wide range of asset classes at low cost.³ The latest figures from Autorité des Marchés Financiers, the French markets regulator, indicate that ETFs are gaining popularity in France, as evidenced by the number of new ETF investors equalling new investors in stocks for the first time in the second quarter of 2024.⁴

The insights from our French survey, coupled with the Eurobarometer findings, highlight the urgency of improving financial literacy — a cause I’m personally passionate about. One of my favourite initiatives at BlackRock are Inspiring Girls Financial Clubs, which we support around the world, including in several European countries such as Spain, Portugal, Italy, France, the United Kingdom, and Serbia. Alongside colleagues who share my commitment to financial education, we organise meetings with teenage girls to provide them with basic knowledge about financial markets and tech innovation in this space.

Helping people understand key economic and financial concepts is essential, but these efforts must be accompanied by a policy environment that empowers retail investors. Simplifying investment while making it more accessible and affordable are equally crucial steps towards fostering a generation of savvy European investors. These are preconditions not only for improving individual financial well-being, but also for creating deep and robust capital markets in Europe, thereby boosting the continent’s competitiveness and unlocking its full economic potential.

Diversification
Diversification and asset allocation may not fully protect you from market risk.

Disclaimer
This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or financial product or to adopt any investment strategy. The opinions expressed are as of July 2024 and may change as subsequent conditions vary. There is no guarantee that any forecasts made will come to pass.