People are stupid. I don’t mean that to be as insulting or derogatory as it no doubt sounds. I am a person and include myself in the sweeping generalisation.
I am horribly aware of my own capability to do something stupid at any given moment, as anybody who has seen me driving will attest.
Nowhere is our collective stupidity more apparent – or more dangerous – than when it comes to money.
Every week a new batch of research highlights the gulf between what we should be doing and what we actually are (or, more likely, are not).
There is no longer any doubt that an advice gap exists, now the only debate relates to how many people have fallen into it.
At a recent conference, Joe Lane of the Citizens Advice Bureau (CAB) began to quantify the problem, saying that 49 per cent of UK households – not individuals – have less than £5,000 in savings, including pensions; 25 per cent have less than nothing once debts are taken into account.
The fact the majority are in a mess is not news. Nor, sadly, is the fact that they are largely clueless as to how to get themselves out of it.
We would be better served just going back to basics and concentrating on keeping things genuinely simple and comprehensible.The CAB research said 20 per cent admitted they lacked confidence in making financial decisions. And that’s just those that admit it. You can bet there are countless more blundering on, oblivious to – or in denial of – their own ineptitude.
The belated arrival of financial education in schools will change things, but a reversal of the current ubiquitous ignorance will take generations.
And what are we supposed to do about everybody who has already left school? Do we just write off all those between the ages of 18 and 65, conceding that it is probably too late to do anything about their inevitable retirement shortfall?
There should be a real opportunity for our industry to help these people and achieve a holy grail of actually making some cash while being genuinely valuable.
Their lack of understanding or confidence should be no obstacle either. The great American showman PT Barnum once said something along the lines of “Nobody ever made a million by overestimating their audience’s intelligence.”
But instead, the personal finance industry’s response is to further alienate these people, too busy trying to show off how clever it is to bother to cater to them.
Just 20 years (although it feels like a lifetime) ago the industry was built around with-profits products.
Insurance-based investment vehicles that were sold on their complexity, they wore the fact you needed several degrees in economics to understand how they worked as a badge of honour.
Designed by boffins, it was considered a good thing the people they were meant to work for did not understand them.
They were consigned to the dustbin of history by the arrival of products characterised by buzzwords like transparency and simplicity, but since with-profits’ heyday, there have been myriad other new products that have come along, superficially to fill a gap in the market, but in reality just designed to show off whatever clever algorithm the actuaries and analysts have come up with that week.
Structured products, 130:30 funds, absolute return, covered warrants, and countless others have all had their moment in the sun; and all have seemingly been designed with much more attention to the journey than the destination.
This problem affects every area of retail personal finance. At the same conference, lang cat CEO and Money Management columnist Mark Polson decried the tendency among platforms to keep tinkering, building add-ons that people do not need and will not use.
Across all the key players in the platform market, hundreds of man hours go into developing the latest whistles and bells, which win awards for innovation, but all the gongs in the world are no substitute for actual customers.If nobody is using your toys, you don’t deserve plaudits for building them.
We are seemingly unable to just leave stuff alone.
The acceptance that we should probably make these things easier occasionally bubbles to the surface, and has resulted in several rounds of changes to regulation, legislation or taxation, each of which is labelled as ‘simplification’.
But you can’t make things simple by adding rules, and each layer of simplification is more about adding a layer than adding simplicity, making this industry ever more impenetrable to the man in the street.
It is as if we are hooked on complexity. We can’t help ourselves. Despite lots of noise about transparency and accessibility, we still come up with convoluted mechanisms that only serve to increase the distance between the masses and the basic but meaningful financial planning they need.
In terms of product development we constantly look to do something new, to go where nobody has gone before. But we would be better served just going back to basics and concentrating on keeping things genuinely simple and comprehensible.
This industry’s collective focus is always on looking to spot and fill non-existent gaps in the market; we should instead be addressing a much more significant gap that is growing all the time.
