Taming the pound

I was asked recently to say what would happen with the hundreds of millions (billions?) of pounds being refunded for mis-sold insurance policies.

A twenty minute conversation became (as these things do) a single line in the Financial Mail on Sunday, to the effect that I thought people would use the money to prop up their lifestyle.

There was also a quote from another “expert” who said everybody would save it, or use it to pay off existing debt.

A simple – people will spend it – doesn’t really reflect what I said and I’m sure that the comment that people would all save their money doesn’t encompass the other argument either.

But then typically, journalism is about headlines, and it wants simple answers.  The desire is for black and white absolutes, people are all the same, all act together, will all spend or all save.

So what’s going on, and where will the money go?

Firstly, this  money is in respect of payment protection cover, which is not really a mainstream need.  Like pet insurance, critical illness cover, boiler and heating cover etc. it’s  something that (if I was still a financial advisor), I’d usually suggest you not take. 

As a coach and psychologist, I tend to ask what you want to get from an insurance (or an investment such as a pension plan, come to that).  If you want value for money, you probably won’t get it from something like PPI. 

The chance of actually claiming on the PPI, boiler cover, pet insurance is quite small.  If you multiply the amount of premium you pay by the amount you’ll get if you claim and do the calculation for the duration of the policy you’ll get less than you pay in premiums.  

That’s true of most insurance (if the odds were in your favour, the company would have to put the premiums up, or they’d go broke).  I’ve explained that in more detail in the book, [amazon-product region=”uk” text=”Taming the Pound” type=”text”]1848767528[/amazon-product]

 The point is that a car, a house, your life etc. are usually more money than you can afford, so you can’t “self-insure”.  With PPI, pet insurance etc. you’re unlikely to go bankrupt from paying a claim out of savings, and if you invest the money that would have been the premium you end up with more money at the end of the day, even if you have to dig into that saving at some point to pay a claim yourself.

If people actually think what they want, most of them will not want PPI – the exceptions will be if the claim would be an absolute disaster, and they don’t mind paying over the odds for peace of mind.

The same thing applies to critical illness and many insurances that are heavily marketed.  If most people needed them, they wouldn’t need to be marketed so heavily.

So a lot of the people who are going to get compensation are people who took out cover they didn’t need.  Theoretically, all of them were over-sold it (or they wouldn’t get a refund) but I imagine that quite a lot actually did want it because they thought they needed it, so in fact the sales people are getting a bit of a beating on those cases – how sad!

The reason people got the cover was, often, that they didn’t understand it, they thought they had to have it, they wanted to do what most people did, they wanted to look financially responsible etc.

Very few of them, however will have made a calculation about whether they really needed it, or they wouldn’t have taken it out, or would have voiced objections at the time.

It therefore seems likely that they are not going to be very “calculation” minded, or prepared to make a lot of individualised decisions about their money.  They’ll probably follow what most people do.

One school of thought (the “savings” school) is that people getting this refund will have learned a lesson.  So they will mostly save the money.

The argument is that, having been conned once, they will be careful, save their money, pay off existing debts etc.  That assumes people learn collectively, not individually.

The idea to which I subscribe is that very few people indeed really behave logically with money.  Human beings don’t really think logically at all – logic not being a survival characteristic throughout most of human history, when we were evolving our advanced brains.  And we learn from our own experience, not collective experience.

Most people, given some money will think of it like money won gambling, found in the street or (very commonly) on credit card.  It will be seen as a form of monopoly money.

Add that to the fact that people have been tightening their belts already, and that these particular people don’t really like doing careful calculations of need.

Bear in mind that status is pretty important to most people and if you can’t afford a new car or holiday and your friends, relatives and neighbours can (or can stick it on credit so that they appear to be better off than you), you have a recipe for a show of conspicuous consumption.

I’m not saying that everybody, including you, if it applies to you, will spend the money.  That’s the problem with the papers, they assume it is always one thing or the other.

Each person is an individual, so there will be a mix of behaviour. But I think the majority will carry on trying to live the life they lead before.

I could be wrong – and if this does include you, spending it and not reducing debt will almost certainly be a big mistake.

But if you think that debt will decrease, savings increase and retail sales spiral downwards, as people act “sensibly”, I think you’ll be wrong. 

It seems more likely to me that, while some “behave responsibly”, the money will run through the majority of hands and never be used to reduce borrowing.

It will be interesting to see whether, however many millions are paid in compensation, personal debt drops by a commensurate amount.

 I don’t think it will, but I hope it does for you.

I’ve said several times that it would be really handy if the UK Government actually bothered to ask what to do in specialist areas instead of going their own way.

But what do they do?

They decide to ask their political cronies and the bunch of hangers-on to whom they want to give jobs, to make pathetic attempts to reinvent the wheel that has already been invented by experts.

So we have this story about the Government measuring happiness .

They’ve chucked out all the expertise developed over 25 years or so, got in a bunch of statisticians and come up with something that is clearly useless in terms of actually helping happiness.

It’s only value is as a way to try to take the pressure of the Government by diverting attention from their dismal failure in other areas. Of course that isn’t going to work because as their own blogger from Central Office says – “The whole idea that individual contentment can be measured is at best foolish and at worst intrusive”.

Of course, I’m not sure how Jill Kirby became a “Family Expert” as she’s described in the Mail article.  She’s been on a lot of policy committees, but, as the people who have produced the happiness measure show, being appointed by the Tories isn’t exactly a sign of expertise.  And she doesn’t seem to have any qualifications in familiy therapy etc. although she might obviously be a real expert and prefer to continue to be seen as  a journalist who writes about stuff because she doesn’t want to boast of her considerable expertise.

But she sure as Hell isn’t an expert on happiness, since she’s clearly never bothered to read anything about how you can measure “individual contentment”.  So it might be intrusive, but if you make it optional, I don’t see how it is, and the idea isn’t foolish at all.

It is the execution of the idea, Jill Kirby, David Cameron and all his merry band of advisors who are foolish.

Still, I suppose we voted for them – maybe.  It would just be nice if, once in a while, Cameron would stop spouting platitudes that he’s one of the guys and not condescending to women, shut up, and listen.  Even he might be capable of learning something, although rather doubt it.  He’s just too foolish.

I’ve seen headlines about the obesity epidemic recently (e.g. http://www.dailymail.co.uk/health/article-301419/Fat-Britain-Tackling-obesity-epidemic.html). 

I’m surprised by the incredulity people show that so many are obese.

Why do you think we evolved to have the taste buds we do, to taste sweet, sour, bitter, salt and umami (the protein taste)?

Sour and bitter are useful guides to food with potential toxins.  Salt is needed to balance our body systems, especially the potassium/sodium mix.  There’s lots of potassium in vegetables so the hunter/gatherer diet had much potassium and little sodium and we lose salt through sweat, so evolving to the ability to taste it and know what foods to eat to replenish it is beneficial. 

Chance mutations meant that people who could taste those things had an advantage over those who couldn’t, and eventually just about everybody could taste them.  But consider sweet and umami. 

Hunting and gathering is hard, it uses lots of energy – if you’re not expending energy hunting, you’re digging things up, cleaning them, preparing them.  And a lot of the time (watch Ray Mears) you seem to expend more energy in getting the food than you can get from the low carbohydrate content in woody roots, or low protein in stringy rodents.  So detecting something that had a high calorie content was great, if you could find sugar cane it was pretty well free energy.  Same with umami, if you could taste that, you knew you’d got protein.

Think about the selection pressure.  If you have genes that allow you to detect and like sweet, what happens?  When you find it you eat more of it.  Sweet means sugar which means energy, you get more of the easily obtained energy.  People with genes that mean they find sweet food nauseating, or that they can take it or leave it, might be able to taste it, but they won’t have any great motivation to eat more of it.  People who like sweet food (or umami) will tend to eat more of it.  They get more energy (and more protein).  They will be more successful in having more offspring, to whom they pass the genes that means a person both detects and likes sweet (and umami).  Those genes eventually dominate in the population by sheer numbers, so most of us like the tastes of sweet foods and protein.

So why are we surprised that so many people eat so much sugary food and so many fatty, salty snacks?

Sugary/fatty food is easily available now, we don’t use calories digging it up, hunting it, preparing it. We buy it and eat it.  Because of the way we evolved, it tastes nice.  We eat more – to the point where we eat far more calories and protein than we actually need, and because our lives are different we have far less need for it than we evolved to use.

And what are the major killers today, that use up millions in NHS budgets for treatment (and even some money in attempts at prevention!)?  Heart disease, stroke, cancer, many of which have nutritional links, with incidence of diseases like type 2 diabetes that have very obvious dietary links increasing rapidly.

What to do?

We can tell people not to eat so much, or give them information about the dangers – and that will work as well as health warnings on cigarette packets.

There isn’t a simple answer, but one thing we could do is spend some money on teaching people (particularly children) to cook. 

Ready meals are seen as “convenient”, as quick (apparently three quarters of adults see them as “good when you are pressed for time).

Never mind Jamie getting school meals healthier – teaching the parents and children to cook from scratch would be better.

Ready meals are full of sugar and salt (they are preservatives as well as flavouring).  They are designed to be tasty, so they have lots of fat, and they don’t have fresh vegetables in (reheat vegetables in a ready meal and you’ll kill a lot of the vitamin content that remained after processing). 

There are plenty of meals that can be cooked from scratch in pretty much the same time as a ready meal can be removed from the packaging (that you pay for) and the advantage is that you can use vegetables in season, which have more vitamin content, and are (literally) cheaper than chips.  You’re not paying for out of season growth, flying it from around the world and all the packaging and chemicals. 

We’re a nation in economic crisis, with an obesity epidemic and unemployment growing. 

Why are we spending money we don’t have on food that isn’t healthy, to try to save time that we do have that we probably won’t save anyway?