How did we lose touch with money?
A click, a tap, a beep… that’s all money has become now. But, how has this intangibility affected our financial lives, even our future? In more ways than we think. We explore the uncomfortable truth about convenience at a time when people are increasingly jaded about the power of capital.
Do you care about your money?
Of course. We all do.
But our relationship with money is going through a tough time. Day after day, we’re becoming increasingly estranged from the one thing that touches every single aspect of our lives. And it’s wreaking havoc on both our spending and our saving.
New technologies have conspired to make money disappear from our lives, liberating us to spend seamlessly. Regardless of what we choose to buy, our money is reduced to a beep. At the same time, the world’s biggest financial crash has caused an entire generation to doubt the power of capital. The result is that we feel more disengaged from our money than ever, sleepwalking as we spend and too despondent to save.
So how did we get into this situation?
Today, people have paid for train fares to Waterloo, bought black Americanos, and booked flights to Romania — all without so much as looking at a debit card, let alone handling cash. At the same time, if you stopped someone on the street to ask how much interest their savings account is giving them, you’d be unlikely to get the right answer.
Spending is seamless. Saving is hopeless. For most people, this has been normal for so long that it’s hard to imagine an alternative.
In July 2017, it was announced that for the first time, the total value of card transactions exceeded those of cash. One-third of those card payments were contactless. Handing over cash forces you to see how much you’re spending. It’s tangible, visible and undeniable: removing a twenty from your pocket gives you an inner twinge of responsibility — should I really be buying another t-shirt this month? — that a contactless tap doesn’t. So, although contactless takes the sting out of spending, it also removes the responsibility.
The bigger picture
As contactless payment grows in popularity, the connection between these new cards and the growth of consumer debt is beginning to be traced. In its June 2017 Financial Stability Report, the Bank of England suggested that contactless cards were stimulating the growth of debt.
Academics have also been sounding alarm-bells. Niro Sivanathan, an Associate Professor of Organisational Behaviour at London Business School, has warned that contactless payments are ‘seducing us into splashing out’ by removing the ‘psychological pain that accompanies payment’.
In encouraging contactless technology, the banking industry has helped make spending easier than ever. But, don’t we also have a responsibility to help customers save seamlessly, rather than just spend? Thankfully, we’re past the stage of wide eyed amazement, and we now have the opportunity to address the psychological consequences of making spending so simple.
The garden path online
It’s not just contactless that’s divorcing us from money. Online shopping promised us the power to buy anything from anywhere, without the hassle of going to the shops, queuing in line and paying at the till. Online spending now accounts for almost 25% of all non-food sales, and counting. Now you can buy a car in your conservatory, or book a holiday in the bath. It’s wonderful, until you realise just how many ASOS boxes have gathered at your front door.
There’s no going back to the days of the high street. But, whereas shops influenced how we spend, the internet has revolutionised it. Shopping online we are much more likely to buy on impulse so we can now act on every product desire. Everyone knows someone who, after a night out, woke up to find that they had drunkenly purchased flights to Andorra or an email from eBay confirming their purchase of a lawnmower. It makes us laugh, but it should also make us think. What happens when buying is so easy that you can do it half cut, in bed at 2am?
The shopping never stops
This transformation has happened so quickly, that we’re yet to fully understand its contradictory consequences. Sure, the internet has made shopping more convenient, but paradoxically it also made choosing harder. Whereas a shop is limited by what it can offer, websites like eBay and Amazon offer thousands of webpages of items with constantly changing prices. And with no one else around, you can find yourself spending hours and hours comparing the attributes of different gardening tools, lost on page twelve of your eighth search. Often, ordering multiple items for comparison, but you never get around to returning any and, lo and behold, end up keeping them all.
The shopping is never done. Thanks to targeted advertising, bags, watches, kettles stalk you all over the internet, chipping away at your resolve to not spend. And, before you know it you’re buying a twin of what you already have or getting something just because of 30% price drop.
Subscribing to no good
Besides online shopping, the internet has also precipitated another frictionless spending habit. Subscription services have exploded in popularity. From being restricted to mail-order films and magazines, you can now subscribe to monthly packages of socks, cupcakes, and everything in between. With time increasingly scarce, subscription services offer a way to get what you need without repeatedly having to shop for it.
Is there anything you can’t buy a subscription for these days?
Yet as anyone with a gym membership will tell you, a subscription is very easy to forget about. Since it needs no maintenance, there’s no need to engage. You can get on with your life, while the money trickles out on its own.
All of these tools encourage us to forget about our money, to ignore our spending habits, to move money out of mind. But the reality remains the same: our spending habits will have an impact, whether you’re paying attention or not. Money affects almost every aspect of our lives — so isn’t it worth understanding it?
Lacking money and motivation
If people have become disengaged from their finances, it’s not really their fault. The economic climate has coloured a whole generation’s perception of what money is and can be. And together with seamless spending, it’s contributed to a long-term decline in our engagement with money.
The financial crisis has had so many negative impacts, it’s hard to keep track. For the past ten years, interest rates have remained stubbornly, historically low. The rise of the iPod, Twitter, the war in Syria — the world has changed enormously since 2008, but all the while interest rates have continued to hover at just above zero.
Millions of adults have yet to benefit from higher rates of interest. Since most Millennials came of age during the financial crisis, they don’t know any different. They expect the economy to be in the doldrums, interest rates to be at rock bottom, banks to offer them nothing worthwhile. According to studies 50% of Britons believe that Millennials will be worse off than their forefathers, with just 22% believing that they’ll be better off. And worryingly, more than half of Millennials report feeling depressed because of their finances.
Not only does this disincentivise saving, it also changes people’s perceptions of money. They expect less from their money, because they’ve not experienced its full potential. The potential of money is obscured by pathetic returns, making it hard to visualise how money can build.
Not much to bank on
Not only did the financial crisis lower our expectations of money, it also lowered our expectations of banks. It’s difficult to recall a time when banks were seen in a positive light. For a decade or more, they’ve been subject to endless bad press. Scandals like Libor, austerity measures, and headline grabbing bailouts have led to an unprecedented collapse in the esteem in which banks are held. Banks have sunk to the butt of our generation’s morbid jokes. Our expectations have plummeted to the point that as long as banks don’t actively mess up, we’re satisfied. Oh, you’re being ripped off by hidden charges? Well, what do you expect — it’s a bank.
Things have got so bad, that according to the Millennial Disruption Index, most Millennials would rather go to the dentist that visit the bank for financial advice. At the same time, a PWC report revealed that less than a quarter of Millennials possess basic financial knowledge. The same report found that 30% of respondents are regularly relying on their overdraft. We’re rejecting banks, but the gap of knowledge, assistance and advice that they’ve left behind isn’t being filled.
Yet if people understood their money’s potential, they’d demand much more from banking. Traditionally, the banks haven’t bothered to empower their account holders, preferring to use strong brands to obscure their inner workings. The result is that too few people are adequately aware of how banks actually work, and as such have remained disengaged from their own money.
So that’s where we find ourselves: stuck with banks we begrudge, spending money without paying attention, and lacking hope for the future.
It doesn’t have to be this way. Our situation is a historical accident, not a permanent inevitability. The good news is that we have more tools than ever which could be cleverly harnessed to improve our relationship with money. We can, and should, begin to retake ownership of our cash, making it truly work for everyone rather than just making it easier and easier for it to slip away.
Together, these changes can trigger the biggest change in spending and saving in a decade. So that money isn’t just easy to spend — it’s easy to save, easy to understand and easy to grow.
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Project Imagine is a vision of an easy and accessible financial future for all. Register with us to be notified when we launch our new financial product. www.projectimagine.com