People in the pensions industry are fond of using the phrase “financial education” as if they know the answer and those who aren’t doing what they want to do are financially illiterate. This is hugely arrogant and largely wrong. People will generally do what they want to do for good reason, the best people like me can do is to give them better opportunities to do it.
Teaching people to behave better can only happen with trust and very few people earn the trust to be genuine pedagogues. Preachers who change the way people lived their lives are few, those who remain trusted after they have died are fewer still. John Wesley lives on through the Wesleyan movement as an example of someone who changed people’s lives when he was alive and who continues to be influential today.
I can number the influencers who I can expect to be influential in ten years time on the fingers of one hand. Martin and Paul Lewis, Steve Webb, Ros Altmann, perhaps Jo Cumbo. These are people who have the charisma to influence today and the integrity to be remembered tomorrow. They are capable of delivering financial education because people listen to them. For the rest of us, and I include me, we cannot aspire to be teachers, gurus or even financial educators and the public will laugh at us if we do.
In truth, the things that people feel they want help on are not the things we want to help them on. They do not need to be told they are not saving enough, they want mechanisms that help them save more, whether that be auto-enrolment, salary exchange, the LGPS AVC-wise or most simply, a better pension deal at work. You do not need financial education to see a good deal, you need Martin Lewis telling you it’s a good deal!
Most of us haven’t time, energy or even a wish to become better educated financially, we want the basic skills to exercise the maximum from the circumstances we’re in. For the fireman, that might be the choice between pre 1992 and post 1992 accrual when it comes to making his choice over McCloud. For the pensioner, that might mean finding out how to claim pension credit and for the everyday saver, that might mean asking questions about ways to top-up the workplace pension. We all have doors to unlock, we need to be shown the keyhole and handed the key.
So we are not financial educators, we are financial servants of our customers. Our job is not to convince them to do what we want them to do, but to service their needs. We need to understand what those needs are and we need to provide them with guidance to keyhole and key.
Nothing fancy
From John Wesley to Jo Cumbo, some people have got the knack of talking to people in a way that makes them listen and generates action that leads to people getting better deals. For Wesley the key was to the kingdom of heaven, for Cumbo it might unlock a decent pension. For neither is the key about “education”, though Sunday Schools and Pension Dashboards might come into it. For all pedagogues, the key is “conviction”, the certainty of knowing you are right.
How many of us really have the courage of our conviction? We are not financial educators, we are servants of our masters, and usually our masters have no conviction at all.
Improving ‘financial education’ is often cited as a way of improving financial decision-making. And there have been plenty of articles etc written about that. For instance, the EU published a massive report in 2010 – “Consumer Decision-Making in Retail Investment Services: A Behavioural Economics Perspective”. I don’t suppose anyone reads it much today, but the following short extract points to some of the issues, covered in comprehensive detail in the 490 page report.
“382. While raising financial literacy levels would empower consumers to better understand the options they face in the [retail investment services] market and to potentially make better decisions or reduce reliance on advice as a result, this approach would not address the issue of poor decisions caused by factors internal to the consumer, such as present-biased preferences, excessive aversion to uncertainty and ambiguity, or loss aversion and narrow-bracketing of decisions. An alternative approach to the attempt to improve financial literacy might be to try improving ‘decision-making literacy’ by educating consumers on how to make a rational decision in their long-term interests and drawing their attention to possible biases in their decision-making process.”
But there is more than one decision that need to be made – Should I buy an investment/pension product? And which investment/pension product should I buy? How should I convert a pot into a stream of income? And the ‘education’ needed for each of these decisions is different, but in each case, the behavioural biases may still remain.