Improving the nation's financial health

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One of my great passions is enabling financial independence and autonomy, which I think requires greater access to financial education and a collective review of our attitude towards debt. I have put down some thoughts in this article and would be interested in your perspective.

It was a great privilege to start 2024 by being re-elected as Alderman for the Ward of Cheap. Never taking anything for granted, the outcome was a relief to me, and I'm delighted to have the trust and confidence of the voters across the Ward once again. I continue in my belief that it's a privilege to serve and I'm committed to representing our community with passion and integrity.

I have taken much time to consider my goals and objectives for my forthcoming term, focusing on how we can individually and collectively support one another within the City, and in turn how the City can support the nation beyond. I stand firm in my belief that the City of London is an extraordinary place, with the power to create enormous good for individuals within its sphere and across the UK.

In many ways, I think the three points of theologian John Wesley's famous sermon entitled, The Use of Money, sums up what I believe to be the best of the City’s capabilities:

"Earn all you can, save all you can, and give all you can."

Within that outlook lies so many truisms - you cannot give what you do not have, hard work is a virtue, and we are all connected and responsible for ourselves and one another. I believe that financial health is inextricably linked with physical, mental and emotional wellbeing. However, while we live in an age where we speak more than ever about wellness, I do not think we empower individuals to take care of their financial health as much as we could. In this, I believe the City can and should take up the mantle to educate, enable and empower, remembering always that national finances are really an accumulation of individual financial experiences.

Sobering statistics

The Mental Health Foundation writes that money worries are the most common cause of anxiety with 32% of UK adults saying that being able to afford to pay the bills had made them feel anxious recently. There is also enormous shame associated with money worries, which perpetuates the issue.

The problem is not hypothetical - the figures alone are fairly anxiety making. According to a survey by the Money and Pensions Service (MaPs), around a quarter of UK adults (11.5 million people) have less than £100 in their savings account, with one in six people having no savings at all. Meanwhile, Jeremy Warner wrote in the Telegraph: "As a proportion of national income, Britain has one of the lowest savings rates in the OECD", with the UK savings ratio standing at 1.7%, the lowest level since the 1960s.

That’s all set within a much wider context of ever-increasing public debt. The Office of National Statistics reports that: "Public sector net debt (PSND ex) was £2,599.0 billion at the end of September 2023 and was provisionally estimated at around 97.8% of the UK’s annual gross domestic product (GDP)." That's 2.1 percentage points higher than in September 2022 and it’s expected to continue to rise over the next 20 years.

I think that by addressing two key factors we can make significant improvements – the first is to amend our relationship with debt both individually and collectively. The second is to provide greater access to financial education so that people feel more empowered to take charge of their own fortunes.

The question of debt

We know there are big challenges relating to the rising cost of living, inflation and other significant factors that have added to this context in the last few years, but they alone are not the cause or the solution to Britain’s money worries.

The question of debt is one that I believe we need a mindset shift on. The expansion of credit culture means we are losing its benefits and are becoming individually and collectively trapped in it. Credit can be an important tool for economic flexibility, but it is just a contract and has no owner in the way that equity or property has an owner. Therefore, responsibility is diminished in debt structures relative to ownership structures. We saw this writ large in the credit crunch when the global economy nearly imploded. A large part of the reason for this was too much easy debt, and yet our response has been to create more debt.

Remembering Gordon Brown’s Jubilee 2000 debt initiative, we must find creative ways of reducing it and the instability it creates in the economy. Currently the corporate tax regime favours debt finance rather than equity finance. This is the wrong way round to my mind and must be rectified. Similarly, stamp duty is payable on equities but not debt instrument trades, which again is the wrong way round and policy needs to be introduced to rectify this.

The age-old concepts of Jubilee in Judeo-Christian teaching and Sharia finance both point to a better policy than the current norms. To this end, having fixed-term credit, where the risk reverts to the lender and/or partnership each provides a useful starting template for a different way forward. Ultimately, a culture and policy of ownership and responsibility needs to be created rather than one that prioritises borrowing.

Education to empower individuals

Culturally we have got used to an expectation of immediacy. It takes a long time to become an overnight success (whatever that means to you), with most people spending a lifetime slowly and steadily putting the pieces in place. However, somehow X-Factor culture and social media has made life’s biggest achievements seem like they should come easily, or at least has diminished their significance. It’s a big deal to buy a house, to save for a well-earned retirement, to have the resources to raise children and look after one's family. These are not small things to manage, and they should be celebrated when they are.

I think part of the reason these things have become so out of reach for many is that financial education is profoundly lacking in our system. That’s not to downplay the economic challenges that individuals across the country face – on the contrary, it’s to say that it’s our responsibility as a community and as a society to give people more tools to make their money work harder for them.

It’s often said that compound interest is the eighth wonder of the world. With that in mind, I don’t think we emphasise enough the importance of starting early with small amounts when it comes to savings and investments. If you save £100 per month between from the age of 25 you will have twice as much as person who starts at 35 by the time you retire – that is the power of compound interest. These are the things we need to be teaching our children, as well as giving adults who want to be more empowered access to learning tools.

Financial education is an area in which the City can make a significant contribution. For example, at Rathbones I set up the company’s first financial awareness programme for young people around 20 years ago and that’s something we’ve continued doing. It was aimed at people aged 16 to 24, but we have subsequently realised a lot of adults are not taught about finance. Often in a partnership or a marriage one person takes responsibility for the accounts and if the other is left alone through death, divorce or disease, they are left vulnerable. Therefore, we introduced adult awareness courses as well.

Alongside that, there’s the Lord Mayor’s Appeal, which has National Numeracy as one of its charity partners. While that’s not explicitly about financial awareness, we know that if you’re more confident with numbers you’re more likely to engage with finances (a survey showed 54% of the UK's working age population has low numeracy).

Autonomy and community

A rising tide lifts all boats and it’s important that we seek to enable and empower those around us where we can. Financial health is a powerful and important thing for individuals to have for themselves and for the country as a whole.

It’s through being empowered to have financial independence that we become privileged to be in a position to give, whether it be to charity or in some other way, contributing to a better world around us and knowing that we’re all vulnerable to life’s twists and turns - there but for the grace of God go I.

I would like to see our attitude and infrastructure around debt reconsidered to that end, and I would like to see improvements around financial education made more widely available and promoted. Over the coming months I will explore the topic in more depth, and hopefully we can move the dial to make a difference.