BBC Radio 4 Four Thought: Fear of Finance by Professor Atul Shah

This blog is based on a BBC radio broadcast for Radio 4 which was heard by two million people and repeated three times. You can listen again to the broadcast, and the follow-up interview on this link: https://www.bbc.co.uk/programmes/m000yldz

Finance – the very word strikes fear into the hearts and minds of millions. It is a subject which overwhelms and drowns more people than it supports. When money was invented, it was supposed to serve society – instead today it has become our master. When one of my students told his friends he was going to become an accountant, they looked at him in alarm: he’d chosen to work in a world they viewed as unfamiliar and hostile.  Their reaction was unsurprising. Over 1.2  million people in Britain today  do not have a bank account, and millions pay vast amounts of compound interest on credit card and personal loans, forever remaining in debt. Imprudence and illiteracy in finance breaks up marriages, makes people homeless and destroys the mental health of both adults and children. 

 It has been proven that over the last four decades financialization, whereby financial markets and institutions play an ever bigger role in the economy, has seen society become enslaved by finance. The financialization of housing, for example, has turned homes into vehicles for investment and speculation instead of places for people to live. Financial institutions, expert professionals like bankers and accountants, and also academics are all too often complicit in a system which promotes materialism and fosters confusion. Finance education – my own field of work  – thrives on making the simple complex, and ignores the important role of culture, faith and relationships in personal and corporate finance. Economics has been deliberately made impersonal whereas we need to understand it in relation to personal human behavior.

For sustained success in life, we need to nurture good habits and be an example of thrift to our children. No longer can we ignore the critical importance of good money culture and knowledge as a life-skill. Like food, shelter and clothing, we need finance IQ if we are to have a peaceful and healthy future for our families and for our society. I believe this needs to be taught at home but also in our schools as part of the curriculum because many parents lack the knowledge to be able to help their children. How can young people manage their money or be responsible informed voters if they don’t understand how finance works? How can you have an opinion about our broken system of share-holder capitalism, which I personally think is unethical and unsustainable, if you have no knowledge to help you engage in debate? 

Let me tell you about my own background which underpins my thinking about the need to reclaim finance as our servant and not our master. I was fortunate to be born in the Jain community, Jainism which arose in India being one of the oldest living religions and cultures on the planet.  Mahatma Gandhi’s guru was a young Jain merchant called Shrimad Rajchandra from whom he learnt about the potential and sustainability of ahimsa– non-violence. Another key principle of Jainism is Aparigraha:non-possessiveness which perhaps unexpectedly goes hand in hand with the Jains several thousand-year track record of success in finance – the knowledge and skills are moulded in our character and DNA. From the moment a Jain nun renounces the world, she is not allowed to carry any cash, and instead lives a nomadic life, depending on the community for food and shelter. She has no choice but to place full trust for her well-being in society, and to detach from her possessions and face her insecurities rather than run away from them. Money is a means to an end, but never an end in itself. Jains have understood the nature and limits of money, and therefore are able to use it for society’s needs and charitable giving. In India we are less than half a percent of the population but provide a significant proportion of all charitable funding. Furthermore, belonging to a community helps us in learning from one another, sharing advice and knowledge, and supporting one another in difficult times. 

‘The giver gives for his own benefit, and must thank the recipient for helping him/her share his wealth’ says the Tattvartha Sutra about the central importance of charity. For Jains, charity gives flow to wealth rather than trap it in one family or person. This experience of the flow of money has been deep in my upbringing from an early age. My late father, Mr Keshavji Rupshi Shah, cared little for money and a great deal for the community where he volunteered for decades. For him wealth was in the giving, not the taking. And we did alright as a family even though we lived in basic rented accommodation all our life in Mombasa, Kenya. The simple life filled with love and community, became for us a rich life. People fail in finance when they are unable to ‘digest’ money – to possess it is to become possessed and constantly fearful and insecure. Even though modern economics classifies wealth as a key measure of happiness, research shows that above a certain amount of money, it rarely brings more happiness. This is why I had no difficulty choosing a life of teaching even when it paid much less than the world of business practice. 

Fortunately, there are some good accountants and bankers in the world, who instead of depleting trust in society, actually increase it through giving trustworthy advice and guidance.

Faith, culture and trust are critical to sustained success in finance, but they can’t be put into a formula which can be taught in a business school, or an objective science which refuses to take account of the depth and range of human diversity. Given our vast global crises in banking and finance – we’ve  had a financial crash in every decade since the 1970s – we urgently need to change our understanding and attitude to finance. These crashes have resulted in the loss of millions of jobs, homelessness and the plunder of savings and pensions.  

Pensions are a classic arena where we are encouraged to save now for a better retirement, but those retirement promises   are not guaranteed, and often the advisors and companies have been turned over many times so no-one is responsible. The same can apply to life insurance and long-term savings products. Not many people know that the commission on the finance deal on a car is worth more to the salesman than the profit made on the car itself. The experts know it, and thrive on front-end fees and rewards, and false hopes for which they may never be held accountable. Instead of helping the client, they enrich themselves. 

Most people encounter finance when shopping, getting a mortgage, saving for a pension or buying a car. They often get scared in understanding the terms and conditions and get drawn in by words like discounted interest rates or ‘teaser’ savings rates, which pull them into the Bank, but can turn sour soon after the account is opened, or when the first two years of the cheap mortgage expire. The scams in finance keep on growing, and the highest losses are suffered by ordinary people whose trust in the advisers is betrayed. Here we have marketing and deceit which is not prevented by regulators. Customer innocence and ignorance is betrayed and exploited, rather than supported, and precious lives and households go unprotected. As the costs of housing and living increase, we’re  left with increasing poverty, inequality and homelessness.

In stark contrast, the wealth and profits of expert professionals and financial institutions keep on growing, in spite of the booms and busts. So many households and families are desperately in need of honest and trustworthy financial advice but are scared to access it as they have a consistent experience of betrayal. 

I also think society has made us confuse our needs, comforts and luxuries. A holiday is not a luxury, when someone has to spend a whole year in debt thereafter to pay for it. Once I witnessed a five year old girl in a supermarket with her mother who had given her some pocket money. She was confused by the array of choices and had to decide between what she really needed and what was on offer but unworthy or unaffordable. We all need to be like this parent – set the right habits early on and be the example of prudence for children so that they learn about thrift and saving, rather than debt and excess. This will not come in any textbook. However, good habits are a critical life skill which need to be nurtured long before bad habits are encouraged by credit card marketing – the buy now, pay later society is ruining our health and well-being.

There’s   a difference between expense and investment, which people often fail to understand. Paying for a high-class suit may be an expense, whereas education and training can be an investment if it leads to better jobs or professional skills. At present students are being asked to borrow for their University education which is a big debt burden early on in life. However, if they can use this debt to work hard on their studies and build a disciplined financial character, it can be a good thing in terms of a long-term return on investment.

 Understanding and accepting death can help us come to terms with our insecurities, materialism and greed – we will not be able to take our money with us. The Jains have a profound philosophy of death, which helps them build significant self-discipline in life, including in our relationship with money. There is no wealth but life, as Ruskin famously said. Choosing the path of an academic and community leader was not difficult for me once I understood the limits of a materialistic lifestyle. For me wealth comes from seeing a student grow in confidence, or when I conduct research which helps transform public understanding. If it requires courage and a public conscience, I credit my Jain roots and upbringing. For our monks to give up everything in search of learning, meditation and reflection sets a very high example for our business leaders. The Jain historical record shows that such a disciplined and ethical personal life leads to sustained wealth creation and fulfilment. Let’s not neglect good culture, awareness and habits relating to money. They can save us from a lot of pain and deceit.

This interview was first published here: https://www.bbc.co.uk/programmes/m000yldz