Is getting back to the ‘normal’ financial systems we’ve been part of for so long really a good thing for our own personal finances and for society as a whole?
This is a slightly different post to usual but given the unprecedented events this past season has bought, I wanted to address some issues I’ve been thinking about for a while.
There’s a lot of talk about ‘getting back to normal’ and what we’re going to rush to do after the lockdown is lifted and the threat of Covid-19 has been diminished. So many people are saying they’re desperate for hairdressers to reopen, or to be able to go to family and friends’ houses and have a drink in the pub. Some are still even holding out hope to jet off for a summer holiday.
Don’t get me wrong, I can’t wait to get my hair done again and have drinks with friends. But, there are other aspects of ‘normality’ I think would be best left behind. This is particularly true for financial matters, as the current system does not work for enough people.
Here are five reasons why we should not rush back to financial norms:
1.The climate crisis
While all focus has quite rightly shifted to the pandemic and the global response to it in recent months, there is no escaping that we are still in the midst of a climate emergency.
If used appropriately, financial markets have the power to help create a greener world. Investment is necessary for all companies and sectors, so if everyone used their investible capital to only fund sustainable projects or businesses, many would be forced to adapt and become greener.
The same can be said for tax policy. If there is a clear financial incentive to be greener, firms will undoubtedly change their ways.
Industrialist and philanthropist Andrew Carnegie (1835-1919) argued that people who succeed have a “natural talent” and therefore acquire their fortunes almost by accident. As a result, they should give away vast amounts of their wealth to help others. “The man who dies…rich dies disgraced,” he argued in his essay The Gospel of Wealth.
And yet, in the past 20 years or so, wealth inequality has increased hugely and the current financial systems support this. Forbes’ annual ranking of the 400 richest Americans found the US’ three richest individuals (Bill Gates, Warren Buffett and Jeff Bezos) collectively hold more wealth than the bottom 50 percent, which equates to 63 million American households.
Surely this is neither sustainable nor fair, particularly when so many are living below the poverty line and wondering where their next meal might come from. Tax policies favouring the wealthy may make the economy look healthy but at what cost?
3. Gender differences
Women are unfairly disadvantaged simply for being female. At 65 years old the average women’s pension pot is a fifth of the size of the average man’s, according to Yes She Can, a campaign designed to raise awareness of the gender investment and pensions gap. If we keep going at the current rate it will take over 100 years to close this gap.
Financial marketing rarely targets women and, on the rare occasion they are targeted, the volume of jargon used puts them off. Yes She Can’s research found women say: “We’re hungry for it. Tell them we’re interested. We want to know more.”
Even lockdown has not been without its inequalities for women. Freelance mothers were left penalised with less state aid because they took maternity leave. The scheme allows struggling freelancers to claim grants of up to £7,500 to cover up to 80 percent of their normal earnings for income lost between March and June, based on average profits over the past three years, but originally did not discount maternity leave.
It took a major campaign from lobby group Pregnant Then Screwed (supported by Telegraph Money) to force the government to change this unfair ruling.
4. Racial inequalities
The current systems also negatively affect BAME individuals. I’m sure you were also moved by the Black Lives Matter protests, with people all over the world calling to put a stop to racism, police brutality and racial inequalities. The issues dealing with race and racism and racial inequality are fully intwined with the issues of wealth inequality. People of colour continue to be economically disadvantaged due to the built-in inequalities in our society and financial systems.
The Covid-19 pandemic has heightened these inequalities in both the UK and the US. People of colour make up a disproportionate share of low-wage essential workers who have not had the advantage of being able to work from home. However, in the US they have also suffered more job losses. 61 percent of Latinx households and 44 percent of Black households have had a job or wage loss due to the pandemic, compared with 38 percent of White households, according to inequality.org.
Closing the persistent “wealth divide” between white households and households of colour, which is already a matter of social justice, must become a priority for broader economic policy if the US is to maintain its strong middle class going forward.
5. Lack of financial education
The UK has completely neglected financial education and, having spoken to those in other countries, it seems the UK is not alone in doing this. This gives wealthy children an immediate advantage. Their parents may have a financial adviser who will in turn advise them, or they’ll be able to learn from their parents. Those who don’t have this advantage have to try and learn everything themselves, but without knowing what they’re missing out on, they’re unlikely to be able to fill all the gaps.
Financial education must become a priority if we want future generations to be more financially stable and less unequal.Tweet
In my next post, I will offer some suggestions of changes we can all make to be more financially inclusive and hopefully become part of an improved financial system.
If you found this post interesting, please like it and share across social media or send it to your friends. I’d also love to hear your thoughts and experiences, especially about how you think we should rebuild after this crisis, so please do leave a comment!