Free money guidance & Simonne's view on the CFEB

Last November saw the formation of the new Consumer Financial Education Body (CFEB). Independent of the Financial Services Authority (FSA), the remit of the CFEB is to focus on meeting consumer’s needs and be less bound up in regulation.

The FSA did a great job in starting to boost people's financially literacy and capability. Now it's up to the CFEB to keep this up and to roll out the Moneymadeclear money guidance service nationally. The challenge is to transform us into a nation of financially-savvy people who save for their future. Quite a tall order!

At CFEB’s conference recently I (Simonne) was impressed by the measures they've taken so far to improve people’s understanding of financial matters. It felt good to participate in talks and discussions that will help shape further developments to engage people in money matters.

While the financial services industry expect people to act rationally, at Sheconomics by default we assume most people don’t. Complex emotions often hijack rationality and people don’t always behave in the way that economists or experts would have us believe we should. A big thumbs up to the CFEB for recognising this too and for commissioning a report ‘Transforming Financial Behaviour’ which explores ways in which people can make better choices. 

Visit CFEB's site to find out more. And you can download information on ‘Transforming Financial Behaviour’ from the following links: Read summary | Read full report  

by Simonne Gnessen

Do do-gooders think they deserve more?

At the end of a productive working day do you feel you’re entitled to a treat?

In your mind, does a week of healthy eating cancel out a weekend bingeing on pizza and pinot grigio?

Scientists in the US have shown that the more virtuous we think we have been, the more we feel we've earned a blow-out.

Smug greens who install energy-saving products consume more. Owners of low energy washers do their laundry more often. And people leave energy-efficient light bulbs on longer than ordinary ones. Even people who are asked to imagine themselves committing a virtuous act are more likely to feel afterwards they deserved a pair of designer jeans. What's it all about?

Moral licensing, that's what. It's a challenge for sustainability advocates and a boon for luxury retailers. People who feel they’ve been ‘good’ will splash out without even thinking about where the urge came from. After all, it’s hard to argue with the part of your consciousness that says, “Go on, you deserve it.”

I must confess to wondering whether this means people who work in virtuous jobs, e.g. charities, get overwhelmed by moral licensing. Do they constantly feel, wow I’m so good I really must go out and treat myself (just as soon as I’ve finished organising the supply to fresh water to this third world village community)? I guess not, because surely faced daily with people who had nothing would dampen your enthusiasm for designer goods? . So what about other virtuous people? Priests? Nuns? Vegans? Are they secret shoppers? I’d love to know what you think about this.

Does it matter which hand you pay with?

Last week Simonne and I were fortunate enough to hear Paul Lewis of Radio 4’s Moneybox Live speak at the Financial Services Research Forum. As well as being well-informed and an engaging spekaer as you’d expect, he also had this good tip on debt.

It was that the debt shouldn’t last longer than what you’re buying.

So if you go into debt to cover Christmas, it should be paid off within 12 months. Borrow for a holiday and make sure you’ve cleared the debt before the next trip away. Go into debt for a pair of shoes but only for as long as they’re in fashion. This would be, he joked, about two weeks. We have to take issue with him there!

My own talk to the forum was about left and right brain processes. Afterwards Paul passed on to me a delightful little Do Something Different tip that he said he came up with years ago. It’s this.

Pay with the opposite hand.

Not only will this feel different, it might affect your conscious experience in another way. The right hand connects to the left brain hemisphere and the left hand to the right. Since the left is more logical/thinking and the right more intuitive/feeling, will this make a difference? Who knows, but it’s worth a try. 

Also scientists have shown that generally people associate the right side with positive concepts, life and all things good and the left with negativity and death. But in left-handers it's the opposite, which suggests it's not a cultural norm but a personal one. 


So left-handers are an interesting example of conceptual associations resulting from sensory-motor experience. According to this theory, left and right handers should feel less positive when paying with the opposite hand.

If you try it, let us know how it felt. Just don’t drop those sale shoes while trying to get out your credit card with the wrong hand. Some quick right hander could have them away before you can say 'short fashion fix'!

Have you read the results of our survey on asking for money at www.sheconomics.com?
More than eight out of ten women don't like asking for money. Even more say they find it embarrassing. 
Perhaps the picture above captures their deepest fears? 
Many female-led businesses are underfunded at start-up, women are less likely to seek angels funding and when they do they ask for significantly less than men. 
Our website also has tips on how to ask for money - it's really no laughing matter!

It's good to talk sheconomics

I loved talking to the Trustees’ Council of Penn Women in the luxurious setting of the RAC Club (not a fluorescent jacket in sight) on Pall Mall last night. Those RAC people are amazing, they can not only fix your car but also serve up some damn good crudites ….

The TCPW are a feisty bunch of bright, high achieving women of all ages and I learned a lot from their comments and questions during our lively session.

We had fun with some of the behaviour economics problems from Sheconomics. To a woman they got the intuitive reasoning problem right (three out of four women usually get it wrong) but they did let their emotions intrude on the ultimatum game. OK, shows they place high value on fairness and social co-operation so it came as no surprise to learn that many work in philanthropic or fund-raising roles.

On the subject of females asking for money, one woman said she can shamelessly extract millions of pounds from others for her cause, but can’t ask for a pay rise for herself. That captures the tendency of the female money psyche to put the needs of others first. It’s what makes us loyal friends and caring individuals, but if we’re not careful it could make us poor too. 

The Emergency Budget in a Nutshell

Simonne's comment on this week's emergency budget:


Although it was a harsh Budget, overall some of the measures weren't as bad
as many were predicting. There's also a significant emphasis on cut back in
the public sector being propped up by concessions made to the private
sector, especially entrepreneurial businesses.

Click here to download our summary of the highlights....

Save hundreds of pounds a year by switching brands?

Martin Isark has an enviable job. 

He’s a professional food and drink taster. He also runs a website called SupermarketOwnBrandGuide.co.uk where you can compare the cost of 2,000 of own-brand products from the main supermarkets with their branded rivals.

The Times featured Martin’s website today and it also appeared in an online article from the Mail recently from which I quote:

“Aldi's chocolate digestives, for instance, which cost 49p a pack, score ten out of ten and are as good as McVities, which cost about £1.30. 
Likewise, Marks and Spencer's Organic 24 Whole Grain Wheat Bisks cost £1.69 and are as good as Organic Weetabix, which costs around £2.27.

And not just with food  -  washing powders, dishwasher tablets and toiletries are worth trying, too. You could save literally hundreds of pounds a year with some simple changes.”

If you’ve the time you could try a blind tasting. Martin swears that most people can’t tell any difference in taste and quality between the top brand of sugar, chocolate biscuits and cornflakes and their supermarket counterparts. He even says that Lidl’s chocolate is better than Green and Blacks. And half the price.

Are we being conned?

I bought some beautifully wrapped 'artisan' Taleggio cheese from Waitrose last week and paid nearly a fiver for a piece barely fit for the mouse trap. 
Blindfolded I swear it tasted uncannily like a Dairy Lea cheese triangle (price 92p for 8). 

Is this why many people who plan to save fail?

We’re always told to make our goals concrete but, according to new research, the best savers make abstract plans. The researchers say it’s better to focus on the ‘why’ question of saving, rather than the ‘how’, because people who focus on concrete aspects of their goals fail to spot other opportunities to save money.

"Imagine a person who has a goal to save money. The person forms a plan to purchase fewer clothing items at the mall," say the authors of the study in the Journal of Consumer Research. "Would the person also be more likely to order a cheaper meal at a restaurant, avoid making an impulse purchase, or combine errands to save money on gas?"

The authors conducted four experiments. In one, people were asked to list a specific plan to save, whereas others were not asked to plan. Then some people were asked to focus on why they wanted to save money. Subsequently, all participants were given the opportunity to buy candy. The goal-setters weren’t so good at resisting the urge to splurge on candy.

"Planning is more effective when people think abstractly, keep an open mind, and remind themselves of why they want to achieve a goal," the authors write. "This strategy is especially effective when the plan turns out to be unfeasible (cheaper restaurant is too far away, gym is closed today for a holiday) or when other goal-directed activities become available (walk instead of taking a cab, eat a healthier meal)."


University of Chicago Press Journals (2010, May 19). Asking 'why' instead of 'how' helps consumers achieve goals of saving money or losing weight. ScienceDaily. Retrieved June 10, 2010, from http://www.sciencedaily.com/releases/2010/05/100518113136.htm

Don't ditch the lipstick girls

I've just carried out some research with my friend the lovely Janey Lee Grace (pictured) which suggests we might be entering an age of natural beauty. 

Women say natural ingredients matter more to them than the brand, when choosing what to put on their skin. 


That's good news. 


Our survey of 1,000 women also found that more than two thirds of women prefer products that are not tested on animals and are free from artificial chemicals.

 But when it comes to going completely natural, more than a third of women would refuse to give up their lipstick. 


Not that that's a problem, as Janey says "There's a 100 per cent natural alternative to everything from nail polish to self tan, so in fact it’s now easy for women to save their skin, their cash and the planet while still looking gorgeous.”

Janey's got a great offer on to coincide with her new book  'Look Great Naturally - without ditching the lipstick' (published today by Hay House). If you're one of the first 100 to order it on Amazon you'll stand to win a bunch of natural goodie prizes. Send your Amazon receipt to janey@imperfectlynatural.com before June 8th (don't forget to include your postal address to receive your goodies) and get free downloads of Janeys new podcast series 'Summer Health' plus an exclusive download track from Janeys brand new album.
     

WHICH SIDE OF YOUR BRAIN IS MANAGING YOUR MONEY?

 Here’s a quick question for you:
A notepad and pen together cost £1.10.
The notepad costs £1.00 more than the pen.

How much does the pen cost?

Sixty-four percent of people say 10p. That’s the wrong answer.

The right answer is 5p. The notepad costs £1.00 more than the pen. So the notepad costs £1.05 and the pen 5p, together they cost £1.10.

‘But I can do simple maths’, I hear you cry. Of course you can but sometimes we don’t bother to stop and work things out. And in the case of the notepad and pen question the brain thinks it can take a short-cut. After all, £1.10 and £1 carve up nicely into a difference of 10p, so that’s the answer we give.

The brain is a clever, complex piece of kit. But it also doesn’t like to do more work than necessary. So it automatises lots of its processing, and relegates all kinds of decisions to the unconscious, intuitive part of the mind. That’s good most of the time. If it didn’t you’d have to work out every morning whether your socks go on before or after your shoes and whether that arrangement of features on a human head represents your partner’s face! But automatising some things gets us into trouble.

Aside from being a quirky bit of fun to catch out your mates with, this question also reveals something deeper about people. It can also tell us how good they are with money.

In a recent study I did, in conjunction with first direct, almost two-thirds of the sample got the question wrong. Those people were also more lax with their money. They had more credit card debt and fewer savings.

This study is the first to show a link between a person’s style of thinking and their personal finances. The notepad and pen question is adapted from a test of Cognitive Reflection (Frederick, 2005, Journal of Economic Perspectives). I’ve called people who give the right answer  ‘reflectors’. They use careful, logical thinking; a style linked to left-brain processes.

Those who get it wrong are ‘intuitors’ and more right-brained. They are more impulsive and go along with their gut instinct, even though it’s wrong.

Someone who  is more left-brained and able to stop and reflect can also suppress the need for immediate reward (buy now, pay later with credit) and will give more consideration to the long-term (invest now, benefit later).

Intuitive people can’t suppress the first answer that springs to mind. They’re the kind of people who live for the moment and avoid putting effort into anything that doesn’t bring short-term gain. This was linked to poor money management, such as only making the minimum repayment on a credit card.

Economists have only just begun to analyse how a person’s cognitive skills relate to their financial decisions. Irrational financial decision-making is the subject of a fascinating field of study called behavioural economics. 

This examines why people often act against self-interest. Examples might include:

• -       having both money in savings and credit card debt (where saving get a paltry return and credit card interest rates are mammoth)
• -       Or the strange fact that people are willing to pay more for something when buying with credit card than they would pay if they had to hand over the cash.
• -       Or people who stay loyal to a bank yet moan about the service they receive

Right-brained people might feel dissatisfied with their bank but because they don’t stop and reflect and they’re not great at decisions involving effort, they don’t change it.

In the study 43% of intuitors had been with same bank since leaving school (for some this was thirty years or more)! This is irrational given how much choice there is now and the cash incentives for switching. For example, first direct gives a satisfaction guarantee. They’ll pay people to switch and if they’re not completely satisfied, they can leave the bank and receive a further £100 for their trouble. 
It seems a no-brainer to me.

Here are some other stats from the survey, carried out with over 500 participants:

• ·       66% of reflectors pay off their credit card in full every month (43% of intuitors do)
• ·       Twice as many intuitors than reflectors pay off only the minimum on their credit cards
• ·       Almost one in four reflectors have changed where they bank at least twice (43% of intuitors have never changed bank)
• ·       87% of reflectors have money in savings (70% of intuitors do)

When looking overall at people’s money behaviour the survey also revealed that:

• ·       1 in 3 people over the age of 55 have always been with the same bank.
• ·       Only 1 in 5 young people (18-25) pay off their credit card balance in full every month.
• ·       Men are more likely than women to pay off their credit card in full each month (63% vs 48%)
• ·       1 in 3 young people (18-25) have no savings (i.e. for non-retirement or emergency purposes)
• ·       1 in 4 people aged 25 to 55 have no savings
• ·       Most (92%) over 55s have savings

More info from first direct's newsroom