Fri 07 Aug 2020

We need to talk about money

Not in a braggy way that is full of bravado, but in a useful way. Growing up in Aberdeen, it wasn't uncommon to hear people refer to themselves as being an "Offshore Tiger" or "big in oil". Over time the meaning of these terms changed. The trouble is that those entering the market over different generations had different levels of financial awareness. 

In my dad's day, if you worked as a contractor you got paid more but you were always at risk of being let go at short notice, so you insured yourself to the hilt. Contractors would go to financial advisers and pensions advisers to take out the likes of critical illness insurance, income protection insurance, life insurance, life assurance, mortgage protection insurance and pension products.

 When the next generation came along, less emphasis was placed on the importance of having these sorts of protection products. People started spending less of their disposable income on insurance and more on cars and holidays. People thought the money would keep coming in. Interest only mortgages became more common. As a student working at the Citizens Advice Bureau, I was astounded by the number of people that had no plan for paying off the lump sum due at the end of their mortgage …but hey house price always go up right?!

 Come my generation, people may be working for limited companies and paying less tax, but they're more likely to have their car on finance and rent their property with no savings or physical assets to show for their high salary. Maybe the focus of life changed for all us "instagramming millennials" and we want experiences not things? That could be true, to an extent, though I would suggest a contributory factor is lack of awareness on how the market fluctuates to your detriment. When the financial crisis hit in 2008, Aberdeen was in a bubble; come 2015 and the drop in oil price, the bubble was no more and house prices did not keep rising. They're still not back to what they were. If you haven't lived in a time when the market drops it's not that you don't remember what happened before, you just don't know and can't envisage how bad it could be.

 I've been thinking about why I knew about insurance and pension products, ISAs and NS&I bonds and high mortgage rates. It's all through talking:

 Insurance and pension products

My dad took advice on what to do to protect us given the nature of his employment. There were four children in my family, and at points my mum was at home looking after us. Having no income all of a sudden was not a chance they could take without having some mitigants in place.

ISAs and NS&I bonds

We had passbooks as kids to save gift money and pocket money.

High mortgage rates

My mum worked in a bank, and usually the staff mortgage rate was a perk of working in a bank. In a story more about employment rights today, she told me that when she went on maternity leave to have me the staff benefit was pulled from her and the interest rate on my parents' mortgage was over 13%. Most UK consumers could not manage if mortgage rates went to 7% today, never mind 13%.

 There is a privilege to being in the position to have been able to have had these conversations. A lot of what I absorbed was through chance. A lot of it came through intentional instruction from my parents. A lot of it came from living in Aberdeen, where people talk about oil and gold prices.

 No matter your geographic location or sector, coronavirus will be having an impact. If this hasn't already made you think about your financial health then now is the time. I would really recommend reading the Financial Conduct Authority's Feedback statement entitled Intergenerational differences: summary of responses and next steps Feedback to DP19/2 and once you've done that, talk about it. As the FCA has stated "the analysis within this paper does not seek to evaluate the intergenerational impact of coronavirus. Instead, the analysis provides a benchmark, based on historic trends over the past 30 years, of how consumer needs across generations could be better met by the market."

 You might think "what does coronavirus have to do with the market and intergenerational differences?" The FCA has a strategic objective to ensure that financial markets function well, therefore they need to understand the changing circumstances consumers find themselves in. The gig economy and zero hours' contracts are not things my parents educated me on. They're things I tell them about to give context for the kind things I need to think about when looking at consumer and regulatory issues. The conversations need to go both ways, not just a waterfall from the top. The old cascade idea won't do the trick, in fact the conversations need to happening at all levels. Whether you're a Baby Boomer (born between 1946 and 1965), Generation X (born between 1966 and 1980) or a Millennial (born between 1981 and 2000), you'll read things in this paper that you'll recognise and others that will make you think. As the FCA has stated, each of the generations faces "different challenges when compared to their predecessors, not only due to their current stages in life, but also because of the cumulative effects of strikingly different economic circumstances."

 It's too easy to just call someone a 'snowflake'. If we can think about things from a different perspective we can engage proactively, helping ourselves and those around us in one go.

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