How does it affect me if share prices fall?

The deputy governor of the Bank of England is the latest high-profile figure to question whether share prices are illogically high.

Sarah Breedon said she expected share prices to fall to reflect the many risks facing the global economy.

As companies grow, they may issue shares. Many of the largest companies in the UK have shares which are bought and sold on the London Stock Exchange.

Their collective performance is often quoted amid a blizzard of numbers that may feel confusing and irrelevant.

Booms or falls in the stock market make the news, but rarely does anyone mention the FTSE 100 during a coffee with friends.

Yet, there are good reasons why this performance affects your life and finances.

Many people's initial reaction to "the markets" is that they are not directly affected, because they do not invest money.

Yet there are millions of people with a pension - either private or through work - who will see their savings (in what is known as a defined contribution pension) invested by pension schemes. The value of their savings pot is influenced by the performance of these investments.

Pension savers mostly let experts choose where to invest this money to help it grow. Widespread falls in share prices are likely to be bad news for pension savers.

Hundreds of billions of pounds are held in defined contribution pensions at the moment.

So big rises or falls can affect your pension, but the advice is to remember that pension savings, like any investments, are usually a long-term bet.

Experts say that investors have always had to ride economic shocks. Investments, by definition, require a long-term outlook and strategy. So, they are urging people not to panic in such circumstances or make knee-jerk decisions.

Some people have a pension which promises a specific value, depending on their salary. Others have no pension at all.

Millions of people have been automatically enrolled into a pension and may have not really noticed. Those schemes see employers divert wages into a pension and contribute some money themselves. The government adds a little in tax relief.

In every case, the value of these pension savings is affected by investment performance. So "the markets" matter - maybe not as much as everyday wages, but for future pensions.

Timing is more critical for those at retirement age, as this may be when a retiree uses their pension pot to buy a retirement income, or annuity. The bigger the pot, the more income they will get in retirement.

As you approach retirement age, pension pots tend to be moved to less risky investments, such as government bonds. When stock markets fall, these bonds can do better.

Anyone who has a pension pot invested and is taking an income from it will again see their investment go up and down with the stock markets.

That could mean getting less than you expected if you cash in too much after stock markets have fallen, making it important to plan how to make up any of this shortfall, experts say.

If share prices fall for an extended period then that could have an effect on jobs.

That's because investors in the company expect a return on that investment.

When it falls for a while, then they would expect the business to address issues, for example by cutting costs, and therefore jobs.

There is a huge element of the unknown here though. Companies have to consider lots of factors when making decisions on investment and employment.

In purely investment terms, lower share prices can offer an opportunity to buy, in the hope that over the long term, they recover and rise. Many people will do this initially through a stocks and shares Individual Savings Account (Isa).

Experts and regulators are at pains to point out that investments can go down as well as up, and urge people not to put everything into one investment, but to diversify.

Some people invest money in what are known as tracker funds. These go up and down in line with the performance of a certain index, such as the FTSE 100.

So if the index falls, so does the value of their investments and vice versa. One advantage of these funds is that they often cost relatively little to sign up to.

Yes, and millions of people do, but experts stress that a long-term strategy is required to ride out short-term falls. It is also important to ensure cash savings are held too, so unexpected expenses - like the need for a replacement boiler - can be covered.

The government is keen to get people in the UK to invest more, partly because it says that will help UK economic growth and partly because it is much more popular among individuals in the US and some parts of Europe.

The chancellor argues that some people would be better off investing rather than leaving cash in savings accounts for years. Rachel Reeves has announced reforms of Isas in 2027 as part of the government plan.

She is also backing an advertising campaign to encourage people to invest, funded by some of the UK's biggest financial services firms.

But the choice of "Savvy the Squirrel" to front the campaign has raised some eyebrows. Some question whether the push could get anywhere close to the success of the Tell Sid adverts of the 1980s, which encouraged people to invest in the newly privatised British Gas.

When we see big shifts in the stock markets there can also be fluctuations in the value of currencies and exchange rates.

As a result, prices could go up, but could also go down.

Upheaval to economies across the world, to oil prices and so on, have a big impact on what we pay at home for goods and services, so there are lots of factors in play.

Clarification 19 December: This article was amended to provide more context around how companies issue shares.