I enter into the final days of the year, hoping to hear less of the e-words in 2019.
“Education” has been appropriated by the financial community as a way to endorse a value set that suits the financial community. Put in its simplest guise – financial education is “save – don’t spend”.
“Engagement” with this message has become the key purpose of everything from the zealots of financial well-being to the technocrats of the pension dashboard.
We engage to get educated and the result is supposed to be “financial well-being”. One thing you notice at Christmas is that people love to spend – especially on others, we are about to hear the debt counsellors who emerge every January to remind us of our folly. They’ll have us all burning calories in their financial gymnasium, exercising our austericals.
Thanks to this friendly tweep – who read this blog and posted this- couldn’t agree more!
If You Talk Above A Persons Level Of Financial Understanding They Will Blank Stare 5 Minutes In or Less pic.twitter.com/UNc3GPE7Oj
— C🔺C🔺: HR , Business,Strategic Manager,Branding (@STFUImTweetn0_o) December 28, 2018
Adult education is not something that’s done to you.
There are ways of getting money savvy that don’t involve being educated. At the First Actuarial conference in May, we’ll hear from impresario Bernard Rhodes, someone who manages his money as well as he managed The Clash and Dexy’s Midnight Runners.
Bernard reminds me that what he knows about money is what he’s taught himself. He’s keen to talk about how growing up in the East End, he prospered by getting smart. The conventional approach “engage and educate” didn’t apply to a Jewish refugee growing up in post-war Britain.
The truth is that saving is in the nation’s DNA, famously we are a nation of shopkeepers, keen to balance the books. That we have a low saving rate is because historically we have sunk our savings into meeting mortgage payments. To blame a working person for wasting their earnings not paying into pensions and ISAs, is to forget that much of the past thirty years, people scrimped and saved to have the security of their property.
Consequently we have generations at or in retirement with considerable financial security and with the means to set their families up when the time comes to pass the equity on.
These financial strategies are not taught but are learned. The financial savvy of the baby boomers has created mass affluence. We are not numpties for not saving into pensions and ISAs.
Simple is best
If the financial strategy of the boomers seems a bit simple, then remember that it has led to mass affluence and financial security in Britain as we have never seen it before. For those who “have”, Britain is a good place to live. It is those who do not have property rights who suffer.
The simple truth is that if you don’t own a property in Britain, you have to be smart on your feet. The prospect of property ownership for many millennials is based on inheritable wealth, Thatcher’s vision of property cascading through generations. The chances of buying your own property are limited for those on low incomes. Gone the days of easy credit, no deposits and high income to loan multiples. The entrepreneurial impulse to home ownership has been replaced by a sullen acceptance among the young that they’ll never have it so good.
In place of the home-owning dream, we are feeding people the lack-lustre dream of a well-funded workplace pension, of a security in retirement based on accumulated savings fostered in frugality. It’s not much of a vision.
Simple is best and pensions aren’t that simple, especially when you are expected to be your own actuary and investment consultant.
If simple is best – why make it so hard?
There is a mindset amongst those who rule the roost in financial policy that doing things for yourself is dangerous. The ideas of self-managed (non-advised) drawdown and of bringing all your little pots into one big pot are disturbing regulators and policy makers.
People are warned off “rules of thumb” and pointed towards financial advisers who will show you how complicated your decisions are.
The implications are that you need to be engaged and educated to understand the complexities of your financial position. Far from enjoying your wealth (as those building extensions to their now purchased houses are doing), we are told to worry about the minutiae of financial planning.
And it’s true, unless you have your wits about you, you will get conned out of much of your savings. That’s what’s happening to over a million people caught by the “net-pay anomaly”.
Many people’s drawdown payments in December and January will unwittingly involve encasement of units at well below true value as the stock-market lurches through a period of high volatility.
Put aside the perils of those deliberately trying to scam you our of your wealth. for most people, pensions are a financial minefield which they cross without guidance or self-confidence.
If simple is best – why do we make pensions so hard.
Mass market strategies need to be blindingly obvious.
The reason Martin Lewis says so little about pensions is that he specialises in the blindingly obvious. What he tells people is evidenced based – uncontroversial because it’s blindingly obvious.
“Save more for tomorrow” is a mass market strategy so long as it’s evidenced by older people enjoying spending more tomorrow. But the simple pensions enjoyed by my generation and those older than me, will not be enjoyed by those saving into workplace pensions. Unless – that is – we make those workplace pensions as easy to understand and as easy to spend as the pensions that get paid to our parents and grand-parents.
The success of occupational pensions was that the concept was blindingly simple, sign up and forget about it. This simple philosophy is exactly the opposite of “engage and educate”.
Young people I speak to are resentful not just that they aren’t on the housing ladder but that they don’t see any pension at the end of the saving, just a lot of confusion and very little that is blindingly obvious.
If we are to have retirement saving for all – we need that saving to translate into something as blindingly obvious as a wage in retirement – pay for life.
94% of us aren’t taking financial advice
Ask people if they are on top of their pensions and you won’t get many saying “I leave all that to my financial adviser” – very few do. Those who do are generally well served but they are the 6%.
If you are lucky enough to be expecting a pension , or being paid a pension -whether by an insurance company or by an occupational pension scheme – then you don’t need advice.
But if you aren’t that lucky – you probably do need advice, advice that is simply not available in a cost effective manner for the average working person.
It is these average working people who are being told to engage and get educated. They don’t want to, they don’t see the point and they don’t see getting engaged and educated about pensions as any fun at all.
Why the dashboard works
The one thing that everyone agrees on – the one mass-market strategy that genuinely gets people excited is the prospect of someone finding their pensions, listing them on a dashboard and giving them the chance to do something about their fractured and broken retirement arrangements.
Believe it or not – people think of a pensions dashboard as fun. They like it because it allows them to get savvy about what they know is an important part of their lives.
The dashboard works as a concept, it is as simple an idea as ideas get – it works for the mass market – for ordinary people who don’t want to have a degree in financial planning.
Or should work….
It is quite possible that we will not listen to the enthusiasm people have for the idea of a pensions dashboard but instead impose our own ideas about engagement and education on those who use it.
People simply want to know where their pensions are, what they’re worth and how the money has been getting on since they gave it away to a pension provider.
They do not want to be bashed about the head with messaging. They don’t want to be told about replacement ratios or shortfall calculations or all that guff that’s aimed at they’re giving more of their money to pension providers.
That can come later and if they want to explore that stuff.
Right now, people have been starved of information about their savings and have no way of telling what’s happened to their money – even where it is.
Let’s focus on giving people what they want and then see how they choose to take things forward.
The pensions dashboard will work if we let people work things out for themselves, it will fail dismally if we shoe-horn them into our idea of “engage and educate”.
Above all, the pension dashboard should be fun – like its title – it should be a simple tool to manage things for themselves. They don’t need your engagement – nor your engagement neither.