Why we need a national campaign on sorting our personal finances: It may not win votes but it would ensure Britain's future financial stability
It's time for a national campaign to steer us towards sorting our finances and away from believing property is top dog, says Richard Freeman, chief distribution officer at Old Mutual Wealth, and member of the Financial Advice Market Review working group
Think for a moment about the rhetoric around housing and home-ownership in the UK.
Former chancellor George Osborne introduced his March 2015 Budget – a big pitch to voters ahead of the last general election - as an announcement that ‘backs the self-employed, the small business and the home buyer.’
In doing so he championed home ownership alongside the start-ups and entrepreneurs that are credited with stimulating much of the UK’s economic recovery following the financial crisis.
Remember Sid? He was the ordinary bloke charged with persuading ordinary people to buy shares in the privatisation of British Gas back in the 1980s. The campaign worked like a dream and shares were snapped up.
Owning property has been celebrated by successive governments as a tool of social mobility and a cornerstone of family stability. Getting the keys to your first place is seen as a rite of passage.
There is nothing wrong with a keen appetite for owning property. But home-ownership is only one part of building wealth and financial security.
When it comes to the basics of a sound financial plan – retirement saving, building a rainy-day fund and securing future financial stability with simple protection cover – there is little or none of the same drip-feed of quiet propaganda to encouraging a healthy savings culture.
Michelle Cracknell, who heads the Government-backed retirement support service, TPAS, this week summarised the conundrum by warning about the worrying perception that buy-to-let is better than a pension.
More needs to be done to help savers make informed choices about how they set money aside for the future.
Richard Freeman: Our policy debates are absent of honest opinion about our household savings
Data from the Office for National Statistics shows that the UK savings ratio has fallen to new lows.
And stats from the Bank of England shows mortgage borrowing rising sharply against incomes. The average loan exceeded four times salary according to figures gather at the end of 2016.
And projections for future generations of retirees suggests their current rate of saving mean they will be worse off than their parents in later life.
Despite all this there is little real honesty in the public debate about our personal finances. Policymakers are fearful about being too blunt about the savings challenge.
It is telling that the most recent Government intervention in the long-term savings market was the introduction the lifetime Isa, a product that will predominantly help aspiring homeowners.
It is a similar story when it comes to pensions. The latest hot-potato for policymakers is the question the state pension triple lock.
Most want to dodge the issue since talking about curbing increases to the state pension goes hand in hand with addressing the shortfall in private savings.
And when it comes to workplace pension saving, the Government was so concerned it might scare people off saving that it only requires us to save a measly 2 per cent of our salary.
Our policy debates are absent of honest opinion about our household savings.
But there is room to gradually change attitudes to saving and ensure the UK’s household finances enjoy a more stable future.
A group of savings experts were recently commissioned by the Government and the financial regulator to examine the possibility of designing ‘nudges’ to change consumer behaviours and prompt us all to save more.
The project, which is part of the Financial Advice Market Review to get the UK households engaged with their finances, came up with a plan for a ‘financial five’.
It is hoped the nudges and financial rules-of-thumb could in time become commonplace in the same way that the ‘five a day’ fruit and veg message.
The 'Financial Five'
1. Clean up your finances regularly
2. Manage your borrowing, don't let your borrowing manage you
3. Save when you can - even a little helps a lot
4. Pile into your pension - it's your future income
5. Other people get help to make the most of their money, so can you
Comparable public awareness campaign around the dangers of drink-driving and smoking have been enormously effective in prompting behavioural change for the greater good of society.
But perhaps the only real example of a public awareness campaign around personal finance is the 1986 ‘Tell Sid’ adverts that left a legacy of small private shareholders following the privatisation of British Gas.
To address the UK’s savings culture, we need to see policymakers putting savings and financial stability firmly on the political agenda, ideally with meaningful manifesto commitments.
Enforcing a serious drive to increase financial awareness may expose some harsh truths about our household finances, which may not win votes. But it would leave a legacy of healthy savings policy that could secure the UK’s future financial stability.
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