As we enter a new decade, trust in business and financial literacy are at an historic low – a ticking time bomb for society. ICAS members have the skills to help says President Mike McKeon CA.
I remember, as CFO of a FTSE company, reorganising our pension arrangements and placing some 2,000 colleagues, who had not been in any pension arrangements before, into new defined contribution pension arrangements. The next thing I knew, people were coming up to me saying, “I have got this investment statement. What does it mean? What’s a dividend? What’s a yield?” With these snatched conversations it became clear to me that this information, no doubt fully compliant with regulations, was largely incomprehensible to them. Frankly, this surprised and shocked me and I quickly realised that what I took for granted as basic financial literacy was something that was far from universally understood across a broad section of our employee base – we had a problem and we had to find a way to help.
People often don’t realise or understand what accountants do. I had made the basic error of assuming they did and, moreover, that they understood some of the terminology and information trained accountants take for granted. So, although it might sound a bit pompous, I think we have a role to play in helping to improve this situation.
CAs are in a privileged position. We understand finance. We’re probably one of the few groups of people who understand the economic wiring diagram of a company and how things interact. We know that if you put an investment in over here, something else happens over there. We can explain it, we understand it, and we know how it works. You could say we’re the business equivalent of doctors – we diagnose problems and improve our businesses in many ways that few really understand. And because we do something that not everyone understands we need to find ways to ensure people trust us to do what we do.
One way is to help improve financial literacy among our colleagues and the wider population. This is not simply to allow them to do a better job at work, but to help them beyond work so they can understand the pension investment statements that will be so vital for their economic health in retirement. This is one way we can improve trust in what we do and in business in general.
If what I experienced at my company in this area is replicated across wider business, and I think it is, then the nation could be sleepwalking into a problem around the management of people’s pension funds and their economic health in retirement. The reason is simple. The risk under defined contribution pension funds, which are increasingly the norm, is now firmly with the individual, and not as before with the employer. And with this comes the responsibility to understand and act on the investment choices.
So, if many do not have sufficient financial literacy they may not be sufficiently engaged or informed about the choices they have to make for their own personal pension wellbeing. If this is the case then the outcome will not be a good one for them or indeed for society as a whole.
In this context, CAs can and should make a difference. In our day jobs we help support economies and we sustain companies, and in doing so we contribute to employing people. But it should not stop at the workplace. We can help in a wider sense by sharing our knowledge and understanding to improve the financial literacy of those around us. It matters to them and it should matter to us. Whether it is in a snatched conversation with a colleague to help or a more formal training initiative, we can make that difference. Now is a good time to make sure we do so.