Otto Thoresen lit the fuse on yet another financial services time bomb last month as he persuaded the Government to buy into his vision of a new Money Guidance service. Although there are few who disagree with the idea of Money Guidance in principle, when it comes to deciding how – or whether it is even possible – to successfully put such a scheme into practice, there is widespread disagreement.
The main issue with Thoresen’s vision is its starting point. While he is right to say that there is an advice gap in the UK – inhabited by people who don’t necessarily need to be sold anything, but do need some guidance on simple financial matters – the root of this problem is cultural, and not simply the result of an inadequate infrastructure.
Although there is undoubtedly room for improvement in the current advice landscape, there are already places where people of all income groups can turn for help on basic money matters. While the web is the richest of these resources – which is admittedly not much help for the millions of households that are not yet connected to the internet – there are also organisations such as the Citizens Advice Bureau, the Pensions Advisory Service and the Consumer Credit Counselling Service, which offer free and independent basic advice over the phone and, in some cases, face to face as well.
The problem is that many of the people who are most in need of financial advice simply don’t want to seek the help they need. Instead, there is a tendency to bury their heads in the sand until things get out of control – at which point, they all too often end up in the arms of an IVA or debt consolidation providers.
I may be wrong, but I’d be amazed if Thoresen’s free financial telephone line gets much business until the bigger issue of Britain’s financial apathy is tackled – and this has to begin in the classroom first, the workplace second, and then perhaps through major public advertising campaigns, such as the ones used to tackle drink-driving and speeding.
Shock tactics can be incredibly effective when it comes to money management. Explaining to people just how much they need to save if they want to retire on a decent income at 65 has always been one of my favourite party tricks. If you’re earning 25,000 a year, it seems almost inconceivable that you’ll ever be able to save the large six figure sum that you need to assure a comfortable retirement. But once you explain about the power of getting started early and the value of compound interest, people see that it is achievable, as long as they take it seriously.
But shock tactics alone will not be enough. The Government needs to force large and medium-sized employers and their advisers to engage staff in the workplace, making financial education seminars mandatory. For smaller businesses, there need to be local seminars for their staff to attend and, in the classroom, children need to start learning about money at a younger age.
The other major problem with Thoresen’s plan is how it will be funded. While he believes it is fair to ask financial services companies to pick up some of the bill – as they stand to benefit from a better financially-educated population – some have argued that, even if the service does succeed (a big “if”), it will be the government who benefits most – as many of the beneficiaries will be those who previously ended up depending on the social security system.
Furthermore, even if the customers of the new generic advice service do start investing or buying more financial products as a result of the GFA they receive (another big “if”), they will still be small ticket customers, not providing much of a return on the industry’s investment.
Although there may well be a time and a place for Thoresen’s generic financial advice service, that time isn’t now. The Government would be far better off focusing its resources on the workplace and the classroom – areas where it could much more easily persuade the financial services industry to get behind it. By pursuing its current path, it is unlikely to achieve its aims, and is certain to end up in a fight.