What’s the ‘gateway drug’ for finance?

Accounting Cafe online seminar on 28 October 2021

The most generous estimates reckon 2/3 of the planet can’t answer some basic questions on finance, but plenty of that 1/3 have guessed their way to those answers with a bit of basic numeracy—the survey is multiple choice, so the planet is doing only slightly better than random!

He estimates that 1% or less know how to take control of their finances to the extent that they can be ‘financially free‘, which would be a more meaningful goal than calculating the difference between real and nominal returns.

The solutions can’t be anything we’ve already tried, like fear or greed, because those obviously don’t work. If they did, we wouldn’t be having this discussion.

He has two ideas, one less controversial than the other. Universal education is one. Kindness is the other.

Transcript

Toby York: You’re on.

Michael Gilmore: Excellent. Thank you very much, Toby. That was a wonderful introduction. Actually, I’m going to go off script a little bit because I did prepare some talking notes.

But after that introduction, what I wanted to do was go back to the time that I started working in finance. And I think this is why I now work on these subjects. Because before I worked in finance, I was really put off by it. And everything about it. I was scared of it. I was bothered by it. I thought it was complicated. And I got a job in finance by accident. I was a writer and someone needed an editor. And I was advised that that was not a great thing to do in an investment bank. So I was advised to become an editor and an analyst. And I thought, well, they’ll let me become an analyst after about three or four months. And they asked me to start on Monday as an analyst. So I had to really come up to speed very quickly.

Which I did and I realized very quickly it wasn’t nearly as frightening or as complicated as I thought. And it was also much more powerful and more important than I thought. And the moment I realized that I became incredibly angry. It wasn’t much more than six or seven years after I’d finished full-time education. And how did I spend 15 years being educated in things that some things I use, some things I don’t? But the thing the one thing I knew I would have to use that could be utterly life-changing. . . no one bothered to teach me. I became furious, actually. And it is what leads me to do what I do today.

I try not to be furious all the time. It may pop out occasionally. I apologise in advance. But that’s why I talk about finance and I am trying to help people who are in that situation that I was in almost 25 years ago now who are put off from finance, who find it frightening or find it inaccessible.

And that’s why I call today’s talk — chat — “Finding the gateway drug for finance” because I think there must be one. And I’m going to admit right from the very start, you know how when people start talking, they ask a question. It’s normally because they’ve got the answer. I’m going to have to admit that I don’t have the answer, but I have an answer. Two or three, actually. But I don’t have the answer. And that’s actually, you know, as we’ve said in all our little interim conversations online, I really am looking for people to talk to me about this. I want answers. I want ideas. I want thoughts. Because I think that’s the only way we’re going to find this gateway drug into finance, the thing that makes it easy and accessible for people.

I think before I do that, I should discuss . . . I think there might be two reasons people are here today. There might be, one, people who want to have that conversation, which is great because that’s going to be 99% of what we talk about. And there might be people who, because of the book I’ve written — Happy Ever After — might be thinking about talking to their kids about money. So I’m going to get that bit out of the way first.

And my advice is, is if you want to talk to your kids about money and want to know how to do it: buy a book. This is really important, actually. It’s not something that — I made that quite offhand — but it’s actually . . . there’s so much to talk about. There’s so much to do, so much information that to try and do it yourself and to try and have all of those conversations yourself with your child puts an incredible amount of strain on both you and the child. You need to outsource that information.

And, you know, it’s even if you don’t agree with all of it, it’s quite good to have something to argue with, with your child. But also you can make the quality confirmations and also a book because it shouldn’t be an e-book and it shouldn’t be a cartoon and it shouldn’t be an app. It should be a book. There should be no digital distractions. It should just be a book that and only that.

I’m going to do something surprising here and say that if they’re under 12 or 13 years old, it shouldn’t be my book. It should probably be something like Will Rainey’s book. Will’s just got a new book out called Grandpa’s Fortune Fables. I know I haven’t read the whole of his book yet. I’ve read bits of it. I think it’s very good. I’ve seen his work and he really talks to kids in very good ways.

If they’re over 14, obviously just get my book. And now just in case the publishers on, that’s them happy. Let’s actually talk about financial literacy. And I want to talk about why we want to talk about this.

For me, it’s because this seems to be a seemingly unstoppable rise of global inequality. And I have the funny — not funny, that’s the wrong word. The strangest data point on this, I think I’ve seen. There was about two or three months ago, there was an article in the FT which had the parents of Etonian students complaining that their children were no longer getting the slots at Oxford and Cambridge University that they were accustomed to getting.

And I think lots of people took lots of different things away from that. Some people took away that it was spectacularly tone-deaf. Some people took away that, you know, that they should be accustomed to them. And I took away something else. I took away that this means even the rich are scared about increasing inequality. Even at the very, very top. The parents of Etonian students think that the curve has grown so steep that they can’t actually risk their kids not getting into the best universities.

There wasn’t a sound of — what’s the word that always gets used — privilege — in the conversation. Actually, there was fear in that conversation. And I think when we talk about income curves and inequality, it is rather abstract and we can go through numbers, you know, the value of being a top earner in the world in real terms is increased by about five times.

The value of being at the bottom has halved in income terms on various surveys I’ve seen. We’re looking at a sort of compound rate of differential between the top and the bottom of five or six percent to make that happen. And what that means — and let’s not forget things didn’t start out equal when that change started. They were more equal than they were today. But essentially what we’ve got is we’ve got a curve that’s gone from a nice rolling Cotswold hill into a cliff.

And I think what we see in the world at the moment are signs of everyone having vertigo. We can see health issues, physical as well as mental. There’s just unnecessary anguish and all kinds of problems built around this inequality.

There are really only two solutions to inequality: politics and education. I don’t get to vote anywhere, so politics is completely useless to me. But I think we can talk about education and if we look at, sort of, financial literacy, how are we going to educate it? I think there’s obvious solution, less obvious solution, and then a few others.

The obvious one is obviously just universal education, that we stick this into schools and we’re going to come back to how much that could achieve later on. The less obvious one, which I think I’ve mentioned in one of the links is kindness. I think that’s actually crucial. And then I think towards the end, are we going to come together and think what a combination of universal education and kindness looks like? It doesn’t look like you’d think actually, because it already exists or it exists out there in the world and it’s our enemy. There, that’s the clue as to what we’re going to talk about.

Right, now let’s look at that chart. This is one of my favourite charts in the world. This is a chart of literacy. Remove the word finance. This is a chart of literacy on the planet for the last 216 years. If you were born in 1800, there was a chance that — you had a 15% chance — of you being able to read and write. 2016, there’s really only a 15% chance of you not being able to read and write. It’s an amazing, just all on its own, it’s an amazing accomplishment by the human race to make this happen.

Now the thing that I actually think is maybe even more amazing is what this chart has achieved, because if we actually look at the next chart. This is longevity —average lifespan. If you were born at the beginning of that previous chart, the likelihood is you’d have had a life expectancy of about 28 years. However, I want you to remember the fact that this is actually almost an inverse correlation to that illiteracy slide. In that period of 200 years when we taught the entire world to read, we’ve doubled our — we more than doubled our average lifespan. Every single person on this call older than the age of 28, owes their life to that literacy chart.

If that hadn’t happened, we wouldn’t have universal doctrine, we wouldn’t have science, we wouldn’t have any of the things that we have today. That’s how important that universal literacy chart is.

And so that, I think those charts are spectacular. But I think it’s also . . . we know that it’s schools that achieved that change in literacy because all the other things that we think actually brought about literacy change were there before that chart.

You know, parents were there before that chart. Quite obviously, You know, a kindly neighbour was there before that chart. Monasteries teaching people to read kept it going for thousands of years. Pens, paper, printing, presses. They didn’t make that change in global literacy.

Even stories had existed for millennia before we had universal education and universal literacy and this — but I want to stop on stories, because stories are the gateway drug for literacy, because none of us went from “The Cat Sat On The Mat” to Tolkein, oh sorry, to instruction manuals. We went via stories. I always have to mention Tolkein because obviously we all had to read Tolkien at some point

But it was that world that stories opened up. They gave us something so much more than basic reading and writing just for informational sake and that’s why I feel that that’s the second thing we need to add in to this.

We do need to get financial education into every school in the world, but we also need the equivalent of the novel, of the storybook, because today, if we look at the things that are out there, we have parents trying to teach it. We have fintechs. We have those wonderful sites on the side of bank websites that try and put everyone to sleep while talking about personal finance.

These things are going to help, but they aren’t going to step-change. The step-change will be universal education. But the thing that will really make it work will be finding that equivalent of the gateway drug of the novel.

And that is where I want to come back to where I started talking about how I was so scared of finance when I came in. Because when we talk about . . . I even want to start thinking about financial literacy just as a phrase, because it’s been suggested to me that we shouldn’t use that even as a phrase, because people just hate finance so much, and the moment you mention that word they will stop listening.

 I mean, I think it’s fair to say that at the moment people hate fund managers and bankers more than they hate lawyers, which is hurtful. Let’s face it, for all of us.

This is . . . I think we need to ask ourselves if it’s a problem for us that people don’t like us. It may be that, you know, or that, whether we just address that global inequality is a bigger problem than our feelings about how people feel about finance. It might be because I spent a quarter of a decade [century?] working in finance, so I’ve got a bit of a thick skin, but I do care way more about what people learn than what they think of our industry.

But I also think that it’s worthwhile thinking that they don’t actually have this, I’m going to say — someone’s put up on my screen that said that hate’s a strong word, which I agree and I’m loathe to use it, but I am going to use it again. It’s not because they hate us just intrinsically they hate us like they hate snakes and spiders. It’s a fear. It’s a fear of exposure.

They blame themselves for not knowing more about it, not doing more about things. They get frustrated because there’s something they can’t understand and yet they’re told it’s simple and then they get more anxious because there’s something they don’t really understand and then they get taught something new on top of it that they also don’t understand. And these things start to layer and layer and resentment builds in. Because we don’t teach it in school, we don’t teach the fundamentals of this in school. This is what we’re doing to people. We’re layering and layering things they don’t understand that we’re building that resentment.

Now, what I would like to do is have a little bit of a thought experiment. I want you to imagine that I am going to say to you that the reason people don’t learn finance is because you don’t teach it very well.

Now, please just imagine I said that. I’m not saying it. But let’s just say I did. It’s your fault because you’re rubbish at teaching. Now, if that happened in the real world. If I was in front of you, I might not want to say it. You might get really angry.

But you could have all kinds of different emotional reactions to someone saying that. You could be angry, rightfully. You can feel betrayed. There would be all kinds of emotions swelling. You’d be thinking, I’m not being understood, I’m not being appreciated. I did write down in my in my speaking notes that, you know, you could be in denial and just think that I’m an idiot. But that may not be so much denial. There could be all kinds of thoughts, swelling in your head.

Now, I don’t think you go into a class and look at your students, or for those of you who aren’t teachers, to your kids, and look at your kids or to your friends or anyone and say you’re stupid, that you don’t get this.

This is the problem. We don’t need to do that. They’re already thinking it. They’re all already thinking that to themselves. Exactly that. I am stupid. They immediately think it’s their fault for not understanding this. They think they missed something. They think they forgot something. They’re blaming themselves.

You don’t have to tell them it’s their fault. They already know. Even though that’s not true, they already know it. And this is where to me, kindness comes in.

It’s, you know . . . sorry I’ve just seen the note I put up on the next page, sorry, which is making me laugh. I don’t know why I wrote that. So I asked you early on to imagine me being an a**hole, not because it’s hard to do, but because I wanted you to imagine the emotions you’d feel being told something. So that’s just what I’d written down, obviously, very early in the morning when I wasn’t thinking I might have to read it out.

But now imagine you feel that way. The way you felt after I said that to you and you knew I didn’t mean it. But if you had thought I meant it. And then I told you, it’s not your fault. Don’t blame yourself. You know, really, everything you feel right now isn’t your fault. No one taught you how to avoid the mistakes that you may have made in the past. And actually, 99% of the time you were encouraged to make those mistakes by other people.

Blaming yourself is going to trap you in anger, frustration, anxiety. And this is where you cannot learn. There’s just no way of learning in that space. We learn in a sense of openness. That’s when our synapses fire, is when we’re open. There’s a theory that we learn best when we’re in love because we are so open. Our senses are so exposed. Kindness opens that window.

And that’s where I feel this comes in to how we communicate. Even if we have universal education, kindness needs to come into that.

I look at it sometimes as a juxtaposition between “Do I want to teach” or “Do I want them to learn?”. Sounds like the same equation, different sides of the coin, but really not. And I only realise this when working with my own daughter, there were things I really wanted to teach her and I realised she didn’t need to learn and she wasn’t going to learn. And I had to back away from those things because it’s just what I wanted her to learn were the really important fundamental concepts that could change her life and that she could grasp them on her own. And it wasn’t important if I taught her or she read them or she moved on or she developed them on her own, but I needed to put her in a place where she could learn them.

So I feel it’s almost like it’s not dumping seeds on the ground. So to use a Will Rainey metaphor, but it’s really how that ground is prepared first.

I feel like I’ve just repeated three slides then, yeah. So, I’m now going to think about if we think about that situation where we give people — I think the phrase is, you give someone permission to not blame themselves. You engage with those emotions. You have some sense of empathy.

Now, I hinted at this before, but the biggest information system in the world is actually already using all of these things — against us. And now I’m going to try and share my last little picture. There. I am not a shill for Patek Philippe, I promise.

“You never actually own a Patek Philippe. You merely look after it for the next generation.”

They’ve been running that for about 25 years. My daughter was incredibly lucky. She managed to get the guy who wrote that 25 years ago to mentor her in copywriting, and they had a conversation about it. And what they did when they first wrote to is they go through the feelings of what a Patek Philippe watch buyer is feeling at the time they’re buying, or even better, they’re about to be a Patek Philippe buyer.

What’s stopping them? Is it the price? Oh, this isn’t a purchase. This is an investment, right? The next generation is going to be around that long.

That they’re feeling selfish, as we sometimes do when we’re going to make a big purchase. This isn’t even for you. This is for the kids. You’re not being selfish. This is selfless.

And it’s consumption. How did you feel about your consumption? This isn’t consumption. This is a legacy. This is going to go on for generations. What even about guilt? Have you been spending too much time away from your family? You buy this watch as an investment for them and this is something they will then remember you by. They’ll take over from you.

You could say this is not remotely kind. I think there’s probably quite a good argument for that. The end result ends in you buying something that they’re tricking you. But actually, the process of getting there is empathy. The person who wrote this ad — I’m taking it away now before any of you go out and buy one. I’m not on commission if you do . . .

Yeah, it’s the writer put themselves in the shoes of, in the life, in the emotional sense, of the buyer and really thought about what they were thinking long enough to overcome their objections to buying the watch.

Now, that’s what we have to do if we’re going to find a gateway drug to finance. If we can get it into universal education, we have to make it so that we can do it well enough to overcome people’s objections to learning about money.

I’m going to really skip this next bit quickly because I think I’m going on about the same subject a bit. But in my head, I often imagine two . . . a community college and the corridor — two classes on the other side. On one side there’s a finance class, dwindling numbers. On the other side there’s a marketing class, people watching through the door because the guy’s brilliant at doing his marketing class.

Obviously, we know which class we’re in and we’re sitting in a finance class looking across going, look at those idiots, right? It’s all very well learning about marketing right now, but if they don’t save into a tax-deductible pension, they won’t be laughing then, will they?

But we need to go into that class. You know, so much of what we see in finance hasn’t done Marketing 101. And we do need to do Marketing 101. We need to get all the lessons that have been . . . not . . .we don’t all need to go and work in a second-hand car sales room. But we do need to do all the things that say someone like Robert Cialdini did when he went to study salespeople and looked at things like social proof and authority and commitment.

These structures like ‘pace and lead’. I mean really ‘pace and lead’ as a sales structure is exactly what I just talked about, saying this isn’t your fault. You’ve walked around the other side of the table and sat with them on their side of the table. Put your arm around their shoulder. This isn’t your fault. You’ve got them to stand up and then you’ve walked them where you want to go. That’s just straightforward sales techniques and we need to do more of those because then we will find them.

And unfortunately, it is our enemy. It is marketing that is doing this. As a personal finance person, marketing is the absolute enemy. And I don’t know how many people know this, but marketing was invented by Edward Bernays, who was the nephew of Sigmund Freud. And before Freud’s ideas were widely known, he applied them to selling things, attaching deeper emotions to things that we don’t need.

His first product was cigarettes and then it moved into everything else. If we can apply this to financial education, I think then we’ll be able to get somewhere. We need that gateway drug.

And this is where I stop because I’m going to do one last thing. No slides presented or prepared rather, and that’s because this is very new for me that I have. I’m trying to launch an awards programme, an awards . . . I wouldn’t call it a ceremony, because it’s just sort of starting, but an awards programme.

And the reason for doing that is because I do think we need to find this gateway. We need to find all the ideas we can that associate that people can associate good things with learning about money that can become the novel for financial education, that can become the thing that really turns people onto it, because that’s when I think we’ll get a chart that looks like that first one I showed you. You know, the one from literacy, where we go from 15% literacy . . . to 15% illiteracy. I would say we’re not even at 15% financial literacy globally.

There is a study that says 30%. I think Adam picked up very well that that’s a multiple choice. So 33% not such a high score when random gets you 25.

So this is something I think we can, if we’re going to move that chart, we do need the universality. We do need to be in education. We also need to think about how we do that. And that’s sort of why I am moving towards awards rather than trying to write that book because I don’t think I’ll be able to do it. I think they’ll be one of the other 7 billion people on the planet will do that better and we need to try and find them and find those ideas and celebrate it.

And that’s why I thought this was an appropriate forum. And that’s where I’m going to stop, because I would love to hear ideas about how we go about that and how we move to finding these best ideas and finding that gateway drug.

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