I read a headline in the Metro the other day, “Families dragged into red by £140-a-month mobiles”.
It’s a reasonable article, about how the number of households falling behind on contract payments has trebled since the iPhone was launched six years ago. Of course, that pretty much coincided with the economic crisis, but it’s probably true that the problem arises mainly from people buying contracts that they can’t afford.
The issue I have is that this is a symptom, not a disease.
I’ve been involved in a couple of discussions related to this recently.
One was on a TV programme (it should air in December) about Christmas spending. The point everybody wants to make is that, as the Archbishop of Canterbury recently said on TV, people “shouldn’t” be obsessed with having “things”. But the fact is, they often are.
The other was at a meeting for “Take Charge”, which is a consortium looking at financial education. At the meeting, people didn’t only talk about products and skills in finance, they talked about “wants” and “needs”. So they seem to have begun to understand that it isn’t just how that matters, it’s why and that the why is probably more important.
But the consensus still seems to be that the reason that people make bad financial decisions is that they don’t know, for example, that borrowing money at high interest rates is a bad idea. I’m not convinced that most people are particularly brilliant, but I’m fairly sure that very few people are as stupid as the educators or the Archbishop think they are. Most people know they “ought” to make sensible financial decisions, they know that spending more than they earn is daft and that they don’t really “need” lots of “things” – it’s just that converting the knowledge into action is difficult.
As you’ll know from other posts I’ve been pushing at the subject of financial education for a while. Things are looking up, since I have made contact with the PFEG through the medium of Take Charge and got a meeting booked with the MAS (which has already been postponed twice), but it’s progress!
And it looks as if people (even those on TV) are beginning to understand that why is actually more important than how and that people need to distinguish between wants and needs.
What they don’t seem to have realised is that simply telling people that they “ought to” distinguish between them doesn’t work. Similarly, if you tell people that buying “things” that they want (like a super mobile phone) can lead to them not having the money for things they need (like food or mortgage payments) you aren’t revealing divine truth (sorry Archbishop, it’s really not in the “road to Damascus” class). They know they should make the distinction, they just don’t know how to do it, or have the will to do it.
My idea is to help people to understand why it’s hard to do (because we didn’t evolve to make “logical” decisions like that), how to do it (you have to work out what you individually really value first, before you start deciding what is a want and what is a need) and how to generate the will (by knowing your values and hence having a good emotional reason to distinguish between wants and needs).
And I’d like to make sure children in schools get taught it too, because not too many of us will grow up to be able to buy everything we want, so sooner or later we all have to set priorities and decide what we really value.
It isn’t rocket science. I’ve had clients who had financial issues and thought that they were really careful with money. And many were paying for massive Sky TV packages, gym memberships, club subscriptions and, yes, phone deals, who told me they budgeted for these things because they were “needs”. And for some clients, some items really were needs. But only some things were needs, and only for some clients, nobody needed all of the things they were paying for. For the majority, the majority of those expenses were not in the “top 50” of things that they really valued or needed when we did some work on it. And while something might satisfy a vital need and a real value for one client, it would do nothing at all for another client, but often a client who didn’t value it paid more for it than one who did. People aren’t rational and having standard lists of what is a want and a need doesn’t work.
It would be great if people would start to pick up on the importance of values, of knowing why priorities are vital, of the relevance of knowing techniques for distinguishing between wants and needs, rather than assuming that simply knowing not to buy “things” or buying only “wants” (without a definition) is adequate.
And it would be great if lessons were given in this, both in schools and for adults (particularly if the Government and other bodies wanted to pay me to teach people how to run them, and use Taming the Pound as a textbook!)
But we’re getting there, slowly!