Oscar Wilde once said: “I don’t know everything. I am not young enough.”
Before I set up my own business, my boss used to say the more we educate people, the more legislation is passed to stop people making fools of themselves.
There are an amazing number of know-it-alls and fools. Neither is confined to a particular age group.
When I drive into work, cyclists routinely go through red traffic lights. I stop for a newspaper and note the strength of the warnings on cigarette packets. I am fortunate never to have succumbed to the poisonous weed but labels telling the buyer that “Smoking kills” and “Smoking may harm you and others around you” seem to be a serious wake-up call.
Then there are the warnings we financial advisers have to give our clients. “Your home is at risk,” “Values can fall as well as rise” and “This assumes a growth rate of X per cent per annum.”
I think illustrations are of little value. There, I’ve said it. What is the real point of a guesstimate of a value 10 or 20 years ahead? With market conditions changing constantly, the regulators have frequently altered the assumptions. Then there is the effect of increasing policy charges. Add the changes to how solvency is calculated and what started as a reasonable assumption will soon look out of kilter.
For whose benefit are illustrations provided? Do they simply give consumers a stick to beat the industry with? Certainly, they seem to convert consumer dissatisfaction into accusations of misselling when an assumption has not materialised. There is a difference between an illustration and a quotation. Like the warnings on cigarette packets that I mentioned earlier, this has been ignored in spite of greater consumer education.
Why do we provide an illustration for, say, a £40,000 lump sum going into a pension but not if capital is being invested in an Isa, unit trust or Oeic?
I have previously commented in these columns on the debt industry. This country has a major problem. In the last 10 years, debt has gone unchecked while savings and financial services have suffered from Government interference in product design and costs. What sort of message is this? No wonder we read of record bankruptcies and the hounding of individuals by organisations that throw credit at them. I read recently of a university student’s suicide after having a £1,000 overdraft called in. It seems there is a cunning plan to get people into debt and keep them there.
The UK’s personal debt is increasing by £1m every four minutes. Since the new millennium, debt has risen by 86 per cent. Credit card debt alone is up by 75 per cent. Average earnings have increased by 28.5 per cent in this period. We can see where the savings problem lies.
Barclays states that the average debt for those finishing university this year will be £13,501. Are we mad?
When you next switch on your TV, look at the loan ads. All those smiling faces thrilled to be consolidating debt, buying a new kitchen, a nice holiday or a car. Then wait for the APR to pop up quietly at the bottom of the screen – 29.9 per cent. Consider, too, the credit card bills which ask for a minimum payment. Over how many years will the debt be repaid? Does anybody tell you in debt illustrations?
Pension and savings illustrations are guesswork. Regular reviews, on the other hand, are based on fact. However, if you are consolidating debt and rejoicing at the monthly saving, I think it would be relevant to know how much longer your backside is going to be sitting on the bacon slicer.
The public will not take on board unpalatable truths. Some cyclists don’t. Smokers don’t. But the number-blindness of debtors is too big an issue to be ignored. Outrageous interest rates should have as much attention as compulsory illustrations and the management charge caps imposed on the investment industry.
I am not a know-it-all. I am far too old.
Len Warwick is chairman of Warwick Butchart Associates