SMUG MONEY: Be ethical? Soz, no tengo dinero

Written by Rebecca O'Connor on 3rd February 2016

Ethical finance is the luxury of the wealthy. The conscience-appeasing pastime of champagne socialists who have risen above the quotidien matters of having enough cash for the weekly food shop, weighing up a holiday or full repayment of a £30k student loan, or whether to quit work or pay for nursery, for a net daily benefit of £20. It is, in other words, for bleeding-heart posh-os.

It can’t be denied that there is some truth in this. Ethical, organic, free range, locally-sourced… to some people, these are all bywords for “too expensive for me”. The differential can be phenomenal. Free range organic eggs from Duchy Organics are 40p each (not even the most expensive any more), more than 4 times the price of ASDA smart price eggs, at 8p each. A New Look turtleneck jumper? £8.99. A roll neck jumper at People Tree? £47 in the sale – more than 5 times the price. If you are on a strict household budget after essentials of £50 a week, there just is no choice but to go for the cheapest. Even if there is a choice, as a thrift-loving nation, the cheapest is often seen as the more virtuous.

No matter how much the wealthy but cost-conscious harp on about false economies and cost-per-wear and while the rationale for spending more on good quality might make total sense, it just sounds patronising and annoying to those more concerned with how to get through the day without spending more than £4. If you don’t have the upfront cash in the first place, whether the cost-per-wear of a more expensive item works out cheaper is utterly pointless – its only effect to make people feel bad.

Unless super wealthy, we are all barred from buying the ‘right’ things by high cost barriers, to some extent. While I can manage free range, organic meat once a week and most of my groceries do match my values, I can’t afford to pay for thermal solar panels upfront (even though I really, realllly want them) or a Tesla electric car (£80k???? You kidding??). Both of these things would save me money over the very long term (see our home energy efficiency blog here and electric car cost savings blog by Ecotricity here) as well as helping the environment, but because I don’t have the upfront cash, I can’t benefit from those savings.

This massive cost wall, right at the start line on anyone’s journey into ‘doing-the-right-thing’, affects us as a society as well as individuals. A retrofit of all the existing UK housing stock would save each household £300 a year and lift 9 out of 10 homes out of fuel poverty, according to the UK Green Building Council. Will we do it? Probably not. The Government, bless it, has a lot of other fish to fry right now, it’s a lot of hassle and besides, poor people don’t vote anyway.

Today, a survey was published showing that while 60% of people in their 50s are unworried about their immediate or long-term finances, employees in their 30s are the most likely to be worried about both, with 20% considering themselves as “struggling”. They don’t think they will have enough money in retirement – 39% think their money will run out 15 years into retirement, while over half (55%) think it will be gone within 25 years.

Minh Tran, senior consultant at Willis Towers Watson, the firm behind the survey got it right when she said: “The immediate financial priorities facing employees in their 20s and 30s – including student debt, housing deposits and childcare costs – can make it difficult to prioritise long-term issues such as retirement savings.”

These concerns affect mental health – 20% say financial worries negatively affect their lives, 25% are worried about their level of debt.  A lack of money causes existential crises. It is a virtual prison, created by banks and the Government, trapping us physically and mentally.

And let’s not forget the economic and societal costs: the report found that people who are unworried about their finances took an average of three absence days from work per year, whereas employees who are struggling financially are absent for an average of seven days per year.

Against this backdrop of a very real struggle with debt anxiety, as well as battling against the ever present danger of immediate and long-term financial failure, plonking a further imperative to be “ethical” into people’s laps could seem almost cruel.

Mais, au contraire. Some experts think that focusing on the values behind where our money goes boosts engagement and confidence. Making money about more than interest rates, premiums and budgets is itself empowering. Combining personal finance with what people are interested in brings meaning to an otherwise abstract arena that most of us find at best tedious and at worst, torturous. It’s an alternative handle on an otherwise slippery set of concepts.

Willis Towers Watson said that financial empowerment and control were the key to improving long-term saving and reducing financial anxiety. It also mentioned the impact of semantics – focusing on ‘wealth creation’ rather than ‘retirement savings’ was more motivating. Bringing the benefits into the present, in other words, makes them more real.

There are lots of new approaches that might help to encourage people to get involved with their money (with the aim of having more of it) rather than metaphorically hiding under the duvet every time someone utters the word “pension”.

We’ve started to make personal finance easier through technology such as platforms and apps, (but could do more), we’ve started to make it more fun, through gamification, simulations, videos and infographics (but could do more) and we’ve started to make it meaningful, through a focus on better customer service. But on this latter point, we are way behind on the part that looks at our money’s role in society and the environment, and here, the industry (and people) are missing a trick.

Because, unlike buying free range and organic food and clothes, pursuing the righteous path with your cash doesn’t have to cost more, particularly in this low interest rate environment. Companies that serve stakeholders including their staff, their customers, their community and their planet perform well over the long-term, meaning they make investment prospects competitive with mainstream ‘non-ethical’ funds for our ISAs.

Meanwhile, building societies that simply enable lending and saving to individuals offer savings and mortgage rates that are on a par with the banks, plus they come with the bonus of not investing your money into a range of esoteric and risky activities across the globe and often, better service to boot. Renewable energy companies can be just as cheap as non-renewable energy providers (but can be harder to find on price comparison sites) for household energy bills.

The reason we don’t all do the positive thing yet is because of access. The GOOD (as in, you know, moral) deals are often not at the top of price comparison site tables, if they are on them at all, and are often provided by small players with marketing budgets to match. IFAs don’t know much about Environmental Social Governance investments, in the main, because they have always been (wrongly) siphoned off into a financial Siberia, where only the most determined would ever find them.

But honestly, when it comes to your money, there are ways you can sit at the table with the champagne socialists in their world of conscience-appeasing money management. And while you might not be spreading organic raw butter on locally-baked bread, you can at least know that the money you put into your cash ISA is doing less harm than good.