Many people find finance baffling – often with good reason.
The complexity of the language the financial services uses doesn’t exactly help.
But is this actually a problem?
BlackRock’s Global Investor Pulse 2015 suggests it might be.
Our survey, the biggest of its kind in the world, has found that many people – where they save at all – choose overwhelmingly to save in cash, rather than other options like shares. So what, you might ask?
Well, sitting in such a low-risk, low-return asset class may prevent people from achieving their long-term financial goals. Historically, over the longer-term it has been a poor way to save.
We’re dealing here with ‘consumer disengagement’ – in plain English, the fact that many people have simply tuned out of financial matters. They’ve been put off by the jargon and the fees and the risks. “Investing?” they say. “That’s not for me.”
However, this attitude carries risks of its own. Within two decades, Britain will reach a tipping point, a moment where one generation of Britons retires poorer than the last. This is highly uncommon – in fact, it will be the first time this has happened in a century, certainly since the creation of the welfare state.
Changing the entrenched attitudes of a nation is no simple matter – but there are three changes that I believe could make a significant impact here.
- Coherent financial education across industry and government
There have been significant improvements in financial education in recent years. And yet, one in six people doesn’t understand the balance on their bank account. One in two doesn’t understand how to calculate a simple percentage.
Clearly, more needs to be done.
In the asset management industry we talk about ‘quartile rankings’ or ‘annual percentage performance’ as if people automatically know what these terms mean.
The truth is that many don’t, and find it a real challenge to understand why, where and how to invest.
I believe that there needs to be more consistency on financial education in this country. There’s a huge amount of work going into financial education at the moment, but it is being undertaken by 130 different entities.
We need greater consistency about how we equip people with the knowledge and tools to manage their finances successfully. The industry and the government need to work together to determine the priorities and goals of financial education.
- A savings minister to fight for consumers in government
There also needs to be greater ownership and a willingness from the political parties to think long-term about the savings agenda.
The rules, particularly with respect to pensions, are constantly in flux – and no one likes the idea that the rug could be pulled from under their feet just as they approach retirement.
I’d like to see enduring, non-political incentives put in place for those on lower and middle incomes to save and invest. I would go as far to suggest that the government could create the post of ‘savings minister’: a minister with sole responsibility for improving the nation’s record on savings.
This minister could help ensure that there were no unintended consequences of government policy and bring cohesion to the savings agenda.
- Make saving as easy as getting into debt
Saving is too difficult. In today’s world of instant gratification, where you can switch a credit card online in a matter of minutes and ‘save’ money, we need to make it as easy to save as it is to get into debt.
An idea worth exploring here is the ‘digital passport’. This would be a single point of contact with a range of different financial service providers, making it much easier for people to manage their assets in one place, with all anti-money laundering and know-your-client procedures completed once, up front.
An initiative like this would reduce complexity: people would no longer need their identity to be certified by their bank, producing two or three copies of utility bills every time they open a new savings vehicle. It would also mean that individuals are less likely to lose track of their savings – after all, they’re all in one place.
In today’s society we move homes and jobs much more frequently than previous generations. This means an individual is likely to have multiple savings vehicles and even pension pots. When an individual moves, there is every likelihood that they may forget to update one or two accounts.
Having a central data repository controlled by the individual should remove this risk and – who knows – perhaps reunite people with the estimated £77bn of unclaimed assets currently residing with financial services companies.
A new way for new responsibilities
Encouraging investment is not only good for individuals – it’s good for the UK too, as it provides the fuel needed for businesses to launch and expand.
All of the technical language and procedures around financial services are too complex, and potential savers and investors find it confusing and alienating. No wonder they choose to stay in cash.
We must find a way to break down these barriers and encourage people to become investors. In this new era of greater financial responsibility, finding a new way to talk about financial services will be crucial.
Tony Stenning is Managing Director, Head of BlackRock UK Retail. Tony’s service with the firm dates back to 2000, including his years with Mercury Asset Management and Merrill Lynch Investment Managers (MLIM), which merged with BlackRock in 2006. He plays an active role with a number of industry bodies, frequently engaging with regulatory authorities and government on a range of industry issues and initiatives.
BlackRock Investor Pulse was conducted in association with Cicero Group between July and –September 2015. A nationally representative sample of over 31,000 people in 20 countries was surveyed. They were aged between 25 and 74 years old, and 4,000 were UK residents. The results of this survey are provided for information purposes only. The conclusions are intended to provide an indication of the current attitude of a sample of citizens in the UK to saving and investing and should not be relied upon for any other purposes.
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