We have a strange relationship with money. We tend to treat it like gravity – we can’t see it or control it, but we know soon enough when it works against us. But money is a human creation, something we should be able to shape or reshape in service of a flourishing economy and society. Is the financial system we have now really the best we can create?
The concentration of the power to control money into the hands of a small elite has led to grave problems for vast numbers of people. And things are getting worse. A report by Oxfam earlier this year revealed that just eight people (all men) have the same wealth as the poorest 50% of the entire world, some 3.6 billion. This select club is even more exclusive than the previous year – dropping from 62 hyper-wealthy individuals, as the stark gap between rich and poor has widened.
Money as part of the ‘circulatory’ system
The effects of wealth concentration are seen at every level, from the global to the local. One person in three in the world lives in poverty. A FTSE-100 CEO earns as much in a year as 10,000 people in working in garment factories in Bangladesh. In the UK, a house in London earns more in price rises in a year than the average family, while one in five people are struggling to put food on the table and heat their homes.
Flows of finance worldwide are exacerbating this problem, not solving it. Global corporations encroach on precious habitats, extracting resources or stewarding land poorly, often leading to irreversible environmental damage and little financial benefit to local populations.
Money is the tool that facilitates the spread of global commerce. It enables the flow of investment, goods and services that benefit companies and their owners, from hedge funds to individual pension savers. Used responsibly, it generates tax revenues for local, regional and national economies, as well as providing livelihoods for individuals and communities, and investment into socially useful activities.
Money is the circulatory system of the of the economy, enabling value to be created and exchanged. It’s essential to economic and social functioning on every level, from an individual life to global economy.
Cutting off the circulation
But what happens if the money supply is restricted or diverted? What if money is secreted in offshore havens or flows upwards, instead of trickling downwards? What if those with the power to direct money focus only on serving themselves and their shareholders, not the wider economy and society?
When the financial system fails to serve everyone, people suffer. Families face the choice between between sending a child to school in dirty uniform and buying a washing machine on high-cost credit. Small business can’t get the finance they need to expand and employ more local people. Young people are priced out of the housing market as speculators inflate the price of property. Future generations face catastrophic climate change, fuelled by today’s investment in coal, oil and gas production. Just as in an organism with poor circulation, this threatens not just the affected area but overall health and wellbeing.
Oxfam, the World Economic Forum and other global organisations rightly perceive growing inequality and social polarisation as a major threat to global stability. Indeed, in a world where the richest 1% are wealthier than the other 99% combined, how can it not be?
Coupled with the environmental challenges that this exacerbates – climate change, deforestation, desertification and pollution, to name a few – all of us have a stake in redressing the power imbalances in finance.
Money as an enabler
If finance is primarily a human system, humans can change it. We can design a financial system that serves all sections of society, that leads to greater equality rather than inequality, and that enables improved circumstances for everyone – benefiting people, communities and environments everywhere.
We can design a system that is genuinely democratic: controlled by everyone and diverse enough for us to have a meaningful choice. We can design a system that is responsible: channelling capital to projects that benefit society and the environment. And we can and should design a system that is fair. Such a system would serve people and planet, not the other way round.
The rise of fintech is prompting many to predict a financial revolution. Certainly the marketplace will change, as will our experience of accessing financial services, much of it built on greater access to financial and personal data (with or without our informed consent). But this isn’t enough of a revolution. We need to create new models of finance from the bottom up, to distribute power more widely, and to challenge the prioritisation of shareholder return above all else. We’re seeing new models come through – from our pioneering Financial Health Fellows and the Fintech4Good network to new forms of values-based, community-powered and positive finance – but we need many more to emerge and thrive.
The future of money advice
So what does this mean for the future of money advice? We often feel powerless in the face of a hugely complex and powerful system, not least when we’re consumed by the urgent need to tackle the worst effects of that system on people’s everyday lives. But the fact that finance is a human system means we each have a role to play in transforming that system: as professionals, as consumers, and as citizens.
This means working to connect what we’re seeing at the front line to the way new products and services are designed, as well as using our experiences to advocate for change in the rules of the game and the behaviour of incumbent institutions. It also means questioning the role we play as financial customers ourselves, as well as understanding what we can do as citizens to demand financial institutions live out their social purpose.
The Lab exists to connect communities of changemakers across all these levels.
This year our Fellowship incubation programme has focussed on financial health – the overall state of a person’s financial wellbeing and their sense of control over their financial life. Financial health puts the person first and considers how finance can be made to work around their life, desires and needs, rather than trying to fit the person into an existing financial system.
Over six months we’ve worked with anti-poverty charity Toynbee Hall to find and incubate the best new ideas for financial health, sharing our learning with key policy bodies and regulators, as well as major financial services providers. For us it’s critical that the new breed of financial services – including money advice services – are built on a deep understanding of the needs and wants of those they seek to serve, as well as an understanding of the structural failings of the financial system.
Anna Laycock Executive Director, Finance Innovation Lab
Finance Innovation Lab is a charity is working for a financial system that serves people and planet. The Lab’s Trustee Bruce Davis will be one of the keynote speakers at the Money Advice Liaison Group (MALG) Conference on 27th November 2017, where the overall theme is the ‘future of money advice’.