Money is supposed to be aspirational. The whole pretext of Western capitalist economies is based on the idea that greater wealth allows us greater participation in society. According to this ideology more money allows us to achieve the ambitions that are fundamental to our sense of self.
Owning our own home, travelling the world, saving for our children’s future or retiring early are all good examples of the types of things the majority of us want to do. We turn to financial services providers to help us save, borrow and spend our way to where we want to be.
In that context, our latest Money Matters Index makes for stark reading. As always, it’s an excellent temperature check on how real people are feeling about their money and essential reading for those of us that work in the industry.
Perhaps the most eye-catching data in this edition though is the creeping sense of pessimism pervading the responses. When asked the question whether they were optimistic or pessimistic about their family’s future financial well-being over a third (33.5%) stated they were pessimistic while just over a quarter (28%) described themselves as confident.
Pessimism is perhaps unsurprising, given the current micro and macro-economic context. Soaring inflation, rocketing energy bills and interest rate hikes make for a precarious picture.
But have we reached a major tipping point toward pessimism? Will the impact of all this uncertainty be crucial for how people engage with money in the future?
A new Age of Precarity
The world has become increasingly complex, uncertain and interconnected since the fall of the Berlin Wall. Initially what Francis Fukuyama famously dubbed ‘the end of history’ seemed to be ushering in a period of unfettered growth and prosperity.
In the West we lived in stable economies that were managed by governments, central banks and markets where the goal was to offer fiscal stability, low interest rates and a cheap consumer paradise.
That is until the real world started to intervene and jolt us out of our comfortable daydream. The dotcom bubble, 9/11 and the credit crunch followed by the subsequent global financial crisis all served to remind people that the veneer of stability can be easily disturbed.
Recent interconnected events have served to highlight just how precarious our situation can be with a global pandemic, an energy crisis precipitated by a major war in Ukraine, a dramatic drop in living standards and the looming threat of ecological catastrophe on the horizon it’s safe to say optimism may be hard to maintain.
Millennials and Generation Z are accumulating wealth and making life plans, and at the same time, living with this precarity permeating everything. It is not controversial to say their attitude toward money and financial security is bound to be shaped by it.
While many of these generations share the financial aspirations their parents had, how long before the constant precarity combined with systemic issues in (for example) the housing market or in saving for retirement really start to change how they regard their money?
Speak to young people and basic financial aspirations like owning a home and retiring with a decent pension seem virtually impossible to them (aside from a lucky few).
Will this shift people to being more risk averse and less likely to expose hard-earned money to financial markets or other products? Or will it precipitate a devil-may-care let’s roll the dice mindset?
Financial services providers need to fundamentally understand how these tectonic plates are shifting and not get caught out as the new financial landscape terraforms.
What is the likely cost of pessimism if people stop trying to make their money work and start spending it instead? What do people need to hear from our industry and how do we help them make their aspirations possible in a sensible, sustainable but engaging way?
My concern is that if we don’t act now, current events will cause more and more people to retreat from the complexities of their money and it could make it nigh on impossible to get them engaged again.
We need to make the topic of money accessible, understandable and realistic. But it’s important not to forget that people need to hear optimism and aspiration too or they will simply tune out.
Without optimism and aspiration as a counterbalance to the Age of Precarity we may lose entire generations that the industry is set up to serve.