I worked as an anthropologist for 15 years with a number of big financial organisations, and time and again I ran up against an inbuilt prejudice that if only we could educate people about money then “the people” would think more like the managers themselves at the top of financial organisations.
The reality I found from watching people and observing money “up close and personal”, is that the social life of money was in fact very firmly embedded in the morality and values of home and family; a desire to create a better future for our children and future generations.
However, the disconnect was not that people didn’t understand money, it was just that the way financial organisations present their idea of money had no bearing on the reality in the world out there. It was arguably the financial organisations that were fooling themselves that somehow you could defy gravity and grow short-term profits faster than the economy without impoverishing the future. Most people stopped trusting or believing such impossible claims long ago (even before the 2008 crisis).
So what do people think about their money and what is the reality of their moral compass when it comes to investing? Well, 58% of UK adults consistently report that they would be unhappy if their money was being invested in things which were environmentally damaging or unethical. A similar percentage, 57%, wants to generate a return that is good for the planet as well as good for themselves.
This would appear to be out of sync with the beliefs of some trustees of pension funds and investment managers inside banks and other large financial institutions, who think their fiduciary duty requires them often to do exactly the opposite. Arguably if they consulted their members more closely about the type of assets they invest in (and stopped just seeing sustainability as something to be reported), they might change their tune on issues like divestment from fossil fuels and other potentially harmful investment classes.
The next myth relates to the very deeply held belief amongst financial professionals that people don’t want to “lend long” and that the most important thing you can offer people is instant access to their savings. Again this doesn’t match up to the reality of peoples’ aspirations when it comes to investment. In particular people want a long-term income from their investment - 75% of respondents felt that was important - and yet more than half - 54% to be precise - are not saving for their future.
This is the real savings gap; a gap in confidence between ordinary people and their aspiration to invest for their future. We don’t need persuading that saving and investing for the long run is a good idea. What we do need is products and services that make that decision simple and accessible to all.
When you speak to investors with alternative finance companies, whether they are peer-to-peer lenders, crowdfunders or the myriad of models in between, they all say they want to feel more in control of their money and how it is invested. Investors also talk about how easy it was to get started with investing in alternative finance, and how they felt it was a place where small investors were treated equally alongside experienced or wealthy investors.
This is the essence of democratising finance, a phrase that has grown in currency over the years and now you hear it coming from governments and senior commentators on the industry, not just innovators and reformers.
These are not solely the ethics and morality of a group of radicals and hippies but also the ethics of people who buy ISAs, do their weekly shop in a supermarket, read the mainstream press and worry about school places and property prices.
This is about more than just labeling something as “ethical” as if it were an alternative to mainstream finance, rather like the way we denote food produced according to certain principles as organic (I always wonder what inorganic food actually is).
The reality is that most of us would seek healthier, balanced and more sustainable food if we could source it as easily and cheaply as fast food. It is not the lack of motivation that is the barrier, but the lack of innovation.
Increasingly we are seeing ethical investments entering mainstream media and conversation. It may not be long before the idea of investing solely for short-term profit is seen as something which is no longer worth the big salaries and status which accompanies it, but instead lives in a highly regulated niche of speculative investment kept well away from the cogs and gears of the ‘real economy’.
People do care about the future their children will inherit and want to invest their money in a way that helps secure that future not just financially but also environmentally, socially and economically.
This is the essence of ethical finance. It is about what business gurus call a ‘win-win’, but ordinary people just call being good with their money.
You can read the Great British Money survey in more detail here and the data is available here under creative commons.
Bruce Davis is joint managing director at Abundance Generation, an FCA-regulated online retail finance business, which allows anyone in the community and wider UK public to invest in renewable energy projects and which is a Founding Member of the UK Crowdfunding Association.
The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organisation or its member firms.
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- The digital banking promise
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