While in Scotland recently I was struck by some RBS advertising in Edinburgh airport that proclaimed the benefits of their financial education activity in schools.
Now, if you can put aside the irony that the bank that received the largest financial bail-out in UK history is teaching our children how to manage money, there is a more depressing and serious point to consider – why are we doing this to them? They are only children after all.
I am a parent so have to declare an interest. I do think our kids are growing up faster than in even my time. Childhood has always been fleeting, but these days, children have access to so much more information. Devices are multiplying and data is ever more accessible. This can be a lot of fun if you are learning about science, music or whatever but, though knowledge is a good thing, everything has a price. Not all information is necessarily helpful and, in some cases, may actually be harmful and cause anxiety. Of course the likelihood is that knowledge of financial management is most likely to increase boredom. As Mick Jagger said in 2002, “All I know from business I’ve picked up along the way. I never really studied business in school. I kind of wish I had, kind of, but how boring is that?”
I’m not saying accelerated learning is all bad – it is clearly anything but – however if we are all going to live longer what’s the rush to obliterate the fun of childhood? They will likely have a sixty year plus working life to get to grips with all this stuff the way we are going.
It may be guilt or an admission of our hopelessness. After all, we have created a society where personal and national indebtedness are our gift to all but the most privileged young people. We cannot sort this out so we do the only thing left which is to tell them how to deal with the monsters.
Alas if Michael Gove has his way children as young as five could be taught about personal finance at school under plans put forward by MPs that call for children to receive compulsory financial education lessons, including credit card interest rates and mobile phone contracts. The fun never stops.
On its website, RBS Group says it has been supporting schools to deliver financial education since 1994. It also details the scale of the misery to date. In 2011 they delivered 34,838 MoneySense lessons in Great Britain reaching 386,604 pupils. Rock and roll. Head for the hills, kids, the bankers are coming!
Many years ago, high loan-to-value (LTV) lending was supported by the Mortgage Indemnity Guarantee (MIG).
This was an insurance policy designed to protect the lender (the mortgagee) against loss in the event of homeowners defaulting and ceasing to repay their mortgages.
The policy was insisted upon by the lender at the start of the loan, and the borrower (the mortgagor) paid the premium.
The premium was calculated by the level of perceived risk to the lender of borrowers defaulting on their loan. In such circumstances, the lender would repossess and sell the property.
But MIG fell out of favour for very understandable reasons. In the past, mortgage lenders did not explain MIG clearly enough (often calling it a High Lending Fee) or they neglected to explain at all that the policy was for their benefit, not that of the borrower.
Also, when claims were made, if the insurer didn’t pay up, the lender might go after the homeowner for recompense prompting the question: what was the point of it at all?
Those who opposed MIG pointed out how homebuyers paid through the nose for it with lenders making as much as 30% commission on each policy they sold – although borrowers never knew this because lenders were not obliged to disclose it.
What’s more, the astronomical premium was as often as not added to the loan, so it might accrue interest that would compound over the life of the loan. Nice.
It’s clear that the MIG of yesterday was far from perfect in execution but that does not mean it was entirely wrong in concept. A way forward for introducing higher loan to value lending in the mortgage market would be to ensure the insurance is in place but to break the lenders’ monopoly over the sale of the policy. That way the consumer would insure themselves.
Inject transparency and choice into the process and there is no good reason why this idea could not be made to work. After all, it apparently works in other countries.
The new Governor of the Bank of England, Mark Carney, comes from a central bank in a country whose housing market operates with compulsory MIG insurance. If we are to see a growth in higher loan to value lending this year, the return of MIG might be imminent.
Banning commission on investment and pension advice has already hurt advisers – but could damage our consumer finances even more in the long run.
If you are already a regular purchaser of financial advice and products through an adviser, you may well be familiar with the Retail Distribution Review, which is due to become law at the end of this year.
If, however, you are an occasional user, like myself, or are even contemplating getting advice in the near future, this new legislation might come as a bit of a shock.
The Retail Distribution Review is changing everything about the way we understand, purchase, and use advice. One of the key measures is to stop commissions on the sale of investments and pensions. This has subsidised the advice offered by firms and large banks in the past and enabled advisers to have seemingly acted on a “free” basis for clients, while the charges were then deducted annually from investors’ funds.
From January 2013, customers who want advice will be charged a separate and transparent fee.
At first glance, this measure seems perfectly reasonable but as ever the law of unintended consequences, which afflicts every policy drive, may render the transparency it achieves on one hand redundant on the other.
Unsurprisingly, several high street banks and many larger IFA firms have decided to focus their services on wealthier consumers who are more likely to be willing to pay, and have made hundreds of commission-based advisers redundant in advance of the changes.
This is going to leave a gaping hole.
The RDR is likely to limit access to financial advice, especially on investment products such as equity ISAs, trusts and bonds that people typically buy through advisers.
My concern is that we are creating a world of financial advice “haves” and “have –nots”. Moving from commission to upfront payments will come as a big shock.
Not many of us need to pay £500 to be told investing is a difficult business and that we can expect volatility and low returns for the next five to ten years as we deflate our way out of our national deficit.
If you have a significant amount of wealth then little will change. But getting the rest of us to save and invest is a pressing problem.
We live in a world where personal investing is key to everyone’s provision for old age. As a nation we have plenty of ill–advised and un-advised debt, but few of us have a plan to fund our retirement.
Removing the commission model entirely does nothing to help this.
To be trusted is a greater compliment than being loved.”
So spoke the children’s author George Macdonald. Indeed, given the prominence and importance of trust in every story we hear or read from childhood to adulthood, you might assume we cherish it above all else. Sadly in banking and the wider financial services industry this has not been the case. From recent charges of money laundering, miss-selling Payment Protection Insurance, Liborgate, to outrageous pension charges, you’d be forgiven for thinking Western capitalism was in something of a meltdown.
As a nation, we have become collectively richer over the last few hundred years so it was inevitable that the financial services industry should play an increasingly important role in our daily lives. But with privilege comes responsibility and these breaches of trust, felt so acutely by many, will not be easily assuaged.
There is good reason for this. Trust has played a defining role throughout human history. From our beginnings as tree dwelling mammals, co-operation and trust have underpinned our success as a species. You cannot efficiently harvest trees that are bearing fruit at different rates, at different times, across a wide area without co-operation and trust.
In their book, the New Penguin History of the World, J.M Roberts and ODD Arne Westad, note that our development from Homo Erectus to Homo Sapiens was built upon our ability to co-operate and trust one another. Advances in communication (and much later language) enabled us to move from a predominantly vegetative diet to hunting big game. Our ability to pool resources, experience, practice and ideas to everyone’s benefit means we value trust above anything else in our relationships.
Trust continues to play a central role in human evolution. It is true that people who are related collaborate on the basis of nepotism and that it takes immense provocation for someone to turn on a relative with whom they share a lot of genes. But trust allows unrelated individuals to collaborate and benefit by monitoring who does what and punishing cheats.
With trust so hard wired into our being, its small wonder Financial Services is having a hard time justifying some of its behaviour. If, as some maintain, trust is like a mirror then it can be fixed but we will always see the cracks in it.
It’s fairly certain that, as a nation, we are still a long way from feeling better about life at the moment. The budget, rightly or wrongly, hasn’t cheered anyone up, but I suspect George and David will sail through the current grumbling – cash for access included – because even though we might not approve or like what they get up to, we trust them more than anyone else to sort out this mess.
What makes me so sure? I am by no means a unequivocal supporter of any political party but when in doubt we can always rely on television to indicate the real mood of the nation and our viewing habits do not lie.
For a good two or three years we have been rooted in reactionary conservatism. We know our place and secretly like the stability. While we hardly dare to contemplate the future with anything but trepidation, our hearts are firmly hankering for the comforts of the past. The Royal Wedding, the Kings Speech, Downton Abbey, Upstairs Downstairs and even last nights remake of Titanic all focus on class and order. For better or worse, everyone knowing their place temporarily, at least, appears to alleviate the mental anguish of today’s chaos.
This may be a cathartic, perfectly natural healing process. It won’t go on forever but TV commissioners are ordering more period dramas. Expect more Henry the Eighth.
As someone said to me last year, “It’s funny how the ruling classes are quite good at it.” Whether you agree or not, that sentiment is why George and Dave need not worry yet.
Just recently I have noticed that Facebook has become a little – how can I put this – unsurprising. The reason is obvious. I am selective about whom I befriend. Twitter by comparison is a hot bed of casual liaisons full of people who, whether genuine friends or cyber acquaintances, are allowing me to experience the joy of discovery that can come by getting involved in the thoughts and lives of strangers.
I’ve always been a bit prone to hanging out with alternative types but I think these newer and more unconventional acquaintances do offer the opportunity to expand our creative potential.
By all accounts human imagination is a rather predictable thing. In study after study, people, when asked to free associate, are very conventional in their responses. The word “blue” prompts answers like “sky”, “sea” etc Apparently, this is because language shapes our choices and our language is full of cliches. Someone has to create dissent and, in familiar social circles where all present have connections or stakes, this is harder to come by.
Dissent is really about surprise. Imaginations are fired up by encounters we didn’t expect. In fact if you go to art galleries and museums you will know this. These places often make us reconsider things. This is the value of Twitter. It’s not to find another stereotype of an arty soul to reinforce a social view of oneself or some kind of comfort zone – that’s what facebook does. Twitter is to find something we wouldn’t normally interact with that can inform and get us to reconsider. I think newspapers used to do this once.
I like a good blog and, in my brief time writing them, I hope I have written one or two that have amused, provoked or entertained to one extent or another. But my regular use of Twitter (@mattsmithwpb) has made writing blogs feel increasingly onerous and this bothers me.
Now I am not predicting the death of the blog. It’s just that from a personal point of view I have concluded that I must re-invent the way I write my own content.
As a side effect of tweeting, the discipline of 140 characters has encouraged speed and concise writing (as well as abominations of language and grammar) to the point of excluding anything that may enhance the point being made. Comments are easily taken out of context and can appear unnecessarily emotive and reactionary. This is a rum state of affairs because sometimes the best creative writing efforts are borne of a stream of consciousness that is not edited to death. It’s a journey that starts in one place and ends in another but when the route must always be 140 paces you can’t travel far. The broadcast scale and speed of Twitter has no time for much more than news statements or one-liners which are hugely entertaining to read and write but like any quick dalliance with strangers will inevitably at some point leave you feeling unsatisfied (dirty Twitter).
So I am resolved this year to nourish and cherish my blogs. Of course this has spurred other thoughts on how to deliver more creative content but I am not sure the world requires or is ready for my first video blog?
There is an irony in the nature of the Western “Occupy” movements. In real terms, most of the protesters remain in the top 1% earners in the world. In his book of last year, the Haves and the Have- Nots, World Bank economist Branko Milanovic states that to be in the top 50% of earners on the planet, you need to earn just $1,225 a year. To be included in the top 0.1% requires an annual income of $70,000. We Western Europeans should discount our dollar-denominated incomes by 10%-20% to allow for differences in purchasing power but even so most of us are doing very nicely.
If it were really about the evils of capitalism then we should be protesting against ourselves. According to the U.N. nearly half the world’s population, just under 3 billion people, earn less than $2 a day and the World Bank say 95% of those living in the developing world earn less than $10 a day. So it appears that many westerners we consider poor are among some of the world’s most well-off.
The Occupy movements are about trust. It is as deep rooted as instincts get. As a species, we often prefer to see those who breach trust punished – even if we all consequently suffer for it. Co-operation has underpinned our success from the earliest times – from the earliest harvesting to the first basic rules of society. Commonality of purpose and neighbourly behaviour enable us to achieve bigger things. All the big scandals are about breaches of trust – MP’s expenses, phone hacking, and even the credit crunch (no-one could trust the dodgy mortgage assets they had been sold).
But globalisation is redefining how physical communities experience trust (or a lack of it). The nation state might not have a fully fledged mechanism to manage the global super rich at the moment but it has served many of us very well. As Milanovic notes, “One’s income … crucially depends on citizenship, which in turn … means place of birth. All people born in rich countries thus receive a location premium … all those born in poor countries get a location penalty. It is easy to see that in such a world, most of one’s lifetime income will be determined at birth.”
If you are born in the West at any level you can be said to have gained a significant advantage. Cecil Rhodes wasn’t far off the mark when he said, “Remember that you are an Englishman, and have consequently won first prize in the lottery of life.”
So Ken Dodd knew what it was but in the age of austerity have we grasped it yet? Consumer confidence measures suggest not but economists have always struggled with the idea of measuring happiness.
Happiness has to some larger or lesser degree always been connected to material well being. Ever since the fifties the standard of living has improved at an astonishing rate and happiness for many people has been inextricably tied up with this journey. Sadly, the credit crunch (though the effects have been largely well managed so far through fiscal and monetary policy) has resulted in rocketing rates of mental health issues as economic realignment takes its toll in human as well as monetary cost.
Some would contend we must be happier as the low paid of today live longer and better lives than the rich of two hundred years ago. There are too many variables for this to work for me but what does appear to be true is that the raising of the “standard of living” bar appears to have converted “wants” into “needs” so now when expectations go unfulfilled people are disappointed.
It may be linked to the birth of mass envy through advertising or poor self esteem through phenomenon like celebrity culture. As a species we do seem to love stuff that (like junk food) in large doses is bad for us. (If you don’t believe me compare the way you feel about yourself after watching University Challenge with how you feel after enjoying an omnibus of Eastenders or Celebrity Big Brother – its called priming I believe).
I have come to the unoriginal conclusion that happiness works like a compass and a good compass doesn’t point to the same direction all the time. There’s a fixed limit on the amount of positive emotion to be experienced by anyone through anyone thing. at any particular moment. If this sentiment is dawning on us I won’t be betting on a consumer led recovery.
Recently I attended a round-table on Social Media (http://content.yudu.com/A1t073/midjul2011/resources/40.htm). I am not an unconditional advocate, it is not for everyone but I am an active user (@mattsmithwpb if you are interested) so I thought i might share my thoughts so far.
Social media’s selling points are speed and scale. It spreads information and connects people in their thousands quickly. The Arab Spring, super-injunctions, and the News of the World story illustrate its ability to quickly publish global online sentiment and influence people’s perception of events.
But for it work properly, social media requires content. Good content is rarely conventional nor are the campaigns and communities that support it. This is problematic for big businesses. Corporates do not deal in real news on the whole (e.g hacking, Trafigura etc) – they want to manage you. As a result companies have not got past first base. Sites such as Facebook remain primarily an extension of advertising strategy that might entertain fleetingly but are not long-term initiatives to build consumer communities. I am sure people will cite exceptions but they will be marketing campaigns none the less.
Social media works if you have something genuinely interesting to say and this is a big ask for mass market brands unless they put a lot of effort into micro marketing – and there is little evidence of that to date. the overarching problem is that most of us take the attitude that life is too short to be “pally” with companies. Much like “customer loyalty”, social media sounds like a good idea but implementing it is really about customer management.
Where social media is informing big companies is in its ability to deliver a snapshot of what people are thinking. Now corporates may covertly try to influence this snapshot (they do honest) but as themselves they will continue to shy away from it because unless their news and opinions are regular and interesting social media will be a bit of an uphill battle.
This is why I think smaller companies and niche providers can do well out of it. It can amplify that niche quirky element smaller businesses have – the reason we like them and use them. It’s hard to see how a mass market fridge manufacturer / retailer can make social media really work. but it is easy to see how a wealth management boutique / broker or niche retailer for example could easily have regular and enlightening views on subjects many of us will feel strongly about. This is not about giving away your intellectual property. It is about illustrating you have intellectual property.
The opportunities go even further in a business to business environment. At its most basic it is as an extension of PR but it can extend your reach among your peers. This is because in the workplace there is an economic imperative to network, be informed and participate. Thought leadership, experience and expertise in a particular area are in demand. If your pay-rise depends on being “part of your industry” you will probably at least explore it. Used properly the mix of tweets, linkedin groups and blogs can keep you and your business “front of mind” and develop your personal and business brand. With the right people in your business you can establish a dynamic and presence previously unavailable without huge PR fees.
So social media is not for everyone and if you do not know what astroturfing is it might not be for you just yet 
Matt
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