How to Stop Financial Anxiety and Increase Financial Wellbeing in the Workplace

Sara 

Welcome everybody. I am thrilled today to be joined by Andrew Craig, who is the founder of Plain English Finance and the author of several books, one of which is my new favourite book, How to Own the World, which thanks to Andrew's book, I now own the world!

And one of the reasons that I reached out to you, Andrew, after being glued to your book for hours and hours and hours, which I never thought I would say about any kind of financial investment book!.

Andrew: 10 years after publishing it, it doesn't get old. You know, it is really lovely to hear when people enjoy the book and get a lot out of it. So thank you.

Sara 

Your book had me so animated that I couldn't not have this conversation with you because I felt so many emotions and so passionate about why do people not have this knowledge and insight to take charge of their financial future. So I think we're both on a mission to have an impact on the lives of people. We are maybe just following slightly different pathways.

Andrew (00:03:19):

Only slightly different though because mental wellbeing and financial wellbeing are so inextricably linked.  Which is why I'm delighted to be on this call. And sincere thanks for inviting me on.

I'm just about to publish the new updated version of my second book, which is called Live on Less Invest The Rest. My first book, How to Own The World is the ‘theory’ and lots of economic history and the sort of commentary around isn't it crazy that nobody learns anything about finance and really big picture stuff.

Sara

So, I'd love you to just say a few words about what inspired you to write these two particular books, Andrew.

Andrew 

I always sort of joke about the fact that I was an angry young man. I was very lucky I did an economics degree, and started in the city as a sort of, as my Grandmother used to describe me, rogue trader, in the late nineties. And I started with what was then SBC Warburg. So basically Swiss Bank, which is a pretty fantastic place to go to work for straight off university. And what really happened was I was a plain vanilla stockbroker and my job was to call people up and say, Easy Jet are raising hundreds of millions of pounds do you want to invest in those shares and give me 10 million quid and we'll give it to EasyJet and off we go.

And that's basically the job of stockbrokers to call up people with large pots of money and say, you know, we think you should be buying Burberry or EasyJet or Marks and Spencer and we think you should be selling. It was such an honour to do it because I basically got to travel around. Well, in my career I've probably met certainly more than a thousand, it might be as many as 1500 chief executives of listed companies now, from all over Europe predominantly. And, what was amazing about that experience was that, and I was saying to you before you hit record, is that even highly paid city professionals were completely hopeless at their own personal finances.

You get these sort of masters of the Universe, investment bankers, captains of industry who, if you said to them, what are you doing with your pension or, or your ISA, or what was called a pep, which was the precursor to an ISA, and they'd kind of look at you blankly and go, oh, I don't really think about that. I've got a financial advisor. Oh, my pension's only been doing 2% a year. You know, and you think, well, that's just crazy.

And so that's the angry young man bit. I thought, if these people who are steeped in financial, in capital markets and allegedly super financially literate and are being highly paid and have the best chance of anyone to make the most of that with investment and become seriously wealthy, but they don't.

A lot of them have huge lifestyles and spend lots of money. It's the same with professional sportspeople. It's the same with movie stars and rock stars. You know there's some stat, something like 150 x professional footballers in the UK are in prison because although they made £30K or £40K or £50,000 pounds a week they never learned about investment. They put money into dreadful property investments in Dubai through their mate Dave or whatever. And it's well known, that the Premier League actually have internal projects around this so young player education doesn’t lose all the money they get paid. There’s a horrendous stat around just how many professional sports people are bankrupt within a few years of leaving sports, which is why so many of them are in prison because then they turn to crime to try and sustain these lifestyles and the cars and whatever else.

And the other stat while I'm on that is the US National Endowment for Financial Education cites. The fact that 70%…

And the other stat while I'm on that is the US National Endowment for Financial Education cites. The fact that 70% of lottery winners are bankrupt within five years of winning the lottery in America, right? And these are tens of millions, sometimes hundreds of millions of dollars.

You Don’t Need a High Income to Become Wealthy!

So the insight is that wealth is so much more about habit and knowledge than high incomes.

Then you've got all these people in the city on very high incomes who've never learned the nuts and bolts of finance. And then you come back to a stat, which is that 90% of British adults don't have a stocks and shares ISA. So more than 90% of British adults are not knowingly or proactively investing in the stock market because they don't know anything about it. 60% of British adults don’t know what compounding is. And compounding is what turns hundreds of pounds into millions of pounds.

If you can invest a couple of hundred of pounds every month for many years and return the sort of returns that stock markets generate over very long periods of time, you should get to a high six or even low seven-figure sum.

And so the biggest problem is one of financial literacy. The man or woman in the street who's not making the best of their finances and is really struggling financially. But what's even more important with today being election day is, that it's really, really bad for our society because being financially challenged causes divorce, causes stress between loved ones.

Being financially challenged is terrible for children who are dependents. It impacts mental health. It's related to health, and everything else.

The way I describe financial literacy is without exaggeration, a silver bullet for massively improved outcomes for individuals.

If tens of millions of people sort this out, tens of millions of people will have a better life and by extension for society as a whole.

The underpinning realities of why Britain became a really wealthy country is because we basically, along with the Dutch, invented financial markets, we invented the stock market and we were disproportionately good at capital markets and financial markets for two centuries.

And in the last 30 or 40 years, we've been slowly dismantling that. And, it really pains me that the majority of people can't draw the link between those two things. The reason we have a cost of living crisis is absolutely inextricably linked to this point is because we are very, very poor at investing.

Let’s Stop Inventing Money Out of Thin Air!

The government has to therefore invent money out of thin air because we don't deploy capital to create wealth anymore. And when you invent money out of thin air you create inflation.

Take Charge of Your Financial Future Now

Sara

I felt such mixed emotions reading your book. I was feeling so empowered that I was buying gold and setting up ISA’s and investing in funds and ‘owning the world’.

But also trying not to feel a sense of regret at having not known about investing sooner. Feeling a real sense of anger that having had financial advisors for the last 10 years, neither of them has ever spoken to me about anything that was covered in your book.

If they'd said 10 years ago to set up an ISA, and which kind of ISA and stick a hundred pounds a month into that ISA, this is the effect that it'll have. I thought an ISA was a savings account. I didn't even know it was an investment account.

Andrew (00:17:56):

That's right. That's why more than 90% of British adults don't have them.

When I was doing the self-published version, I found a professional editing company and I was introduced to an individual who was probably in their early sixties and had had a career as a financial journalist for 30 years and had written for, you know, really big papers and on paper looked fantastic.

And they read the book and came back to me and said “in your book you're talking about making returns of as much as 10% or even more than that in an ISA. That's impossible. I'm looking at my newspaper right now and the best returns on cash are 3%”. And it was clear that this individual who'd been a financial journalist for 30 years didn't understand the absolutely crucial difference between a cash ISA and a Stocks and Shares ISA.

And if they don't, what chance do most people have.

The 8^th Wonder of The World | How to Make Money While You Sleep

One of the most important things for people to understand is the sheer power of compound interest. And surveys say that 60% of British adults don't understand compound interest.

For example, if somebody's lucky enough that a great Aunt Agatha or Grandparents could put 5,000 pounds in a tax-free account (an ISA), on the day a child is born, if that 5,000 pounds with no further investment whatsoever, if that returns 10% per annum, after year one, you have 5,500 pounds after year two, you have 6,050 pounds.

How much will they have on their 55th birthday, which is the first year at the moment you can legally retire? And the answer is 945,000 pounds.

• The average return on the S&P 500 of the 500 biggest shares in America from January 1923 to December 2022 was 10.42% (I am obliged to point out that past performance is not indicative of future results)
• When you invest, along the way there's volatility and there are stock market crashes. And the way you mitigate that is by investing for very long periods of time, investing every month without fail.
• Now you can own 4,000 companies with as little as 25 pounds a month in a world stock market index.
• If you do that every month, ignore the news, ignore talking heads, and just do it every month from the time you first start earning money to the time that you want to be able to live on your money, which is the ultimate goal of investment.
• You mustn't panic and sell out in crashes.
• You must just carry on doing it. And so that 10% maybe use 8% to account for inflation. But those returns are enough to absolutely change your life.
• Use the right mix of assets, which is the whole ‘how to own the world’ basis in my book.

The Difference Between Investing and Trading?

Andrew (00:26:46):

I've done a video about that on my YouTube channel and written about it. That is a fantastic question and it's really important thing to understand. Investing is something you do every month without fail. It's a life habit alongside any other life habit you do every month.  

Investing builds wealth slowly, surely, gradually inexorably over many, many years. Learning how to drive your finances is no harder than learning how to drive a car.

Financial markets are not for rich people. The reason there's a correlation between rich people and capital markets and understanding capital markets is that if you understand capital markets, you are much more likely to be rich!

Sara

After reading your book, I went on to Interactive Investor's website, which is one of our corporate clients. We'd trained them in mental health training for managers, and I saw that they had a managed ISA.  I've now got a direct debit set up with them. So they are the ones that are doing the legwork, the heavy lifting. And I sit back and reap the rewards.

Andrew (00:31:05):

Trading is what too many people think investing is, which is where you buy some shares on a Tuesday and they increase and you sell them on a Friday. That’s not investing, that’s trading.

An ISA, or a pension is a tax-sheltered account that the government gives us lots and lots of headroom to do the best we can with our finances in account. And ISA is not an investment. A pension is not an investment, it's an account that you put investments in.

Sara 

So the difference between investing and trading; investing is having an ISA account that we then put money into on a consistent basis into different types of assets. And it's that money that's never sleeping, it's making money for us. And the magic money, which is compound interest, is giving us free money. And we can in the UK put 20,000 pounds tax-free into an ISA.

Renting Versus Buying

Sara (00:36:43):

In your book, you give the example from Sex and The City (and I loved the fact you made your examples so relatable!) and how Carrie thought New York was a City of renters. But interestingly her friends all owned their property.

Playing a little bit of devil's advocate with you, you talked about this obsession to get onto the property market in the UK and in the US and that potentially it's better to rent. I understood what you were saying from a logical, rational left-brained level. When I moved from Brighton to Edinburgh I rented, and I've been here for 10 years, I had to move three times because the owner of the property either wanted to sell it or they wanted to move back in. So I had the pressure of finding somewhere that I actually wanted to live. And then the whole packing your life up, the cost of removal companies etc.

Andrew 

It's a lot less than stamp duty.

My removal company for my last move was a hundredth of the stamp duty that I would have to pay on the house I was moving into.

Renting versus buying is a real hot potato. And let's be clear, I don't just say renting's better at all. I just say that most people do not do the sums and do not think deeply enough about what suits their circumstances and the merits of renting versus buying.

And most people have assumptions, born of conventional wisdom and the press and, you know, renting's throwing money away and buying is always better. And you must get on the property ladder. There's no thought about the extent to which the property ladder can actually be the property snake, by the way. And my point is just that very few British people, when they contemplate the relative merits of renting versus buying think in a sufficiently nuanced and advanced way.

And they need to realize that property doesn't always go up in real terms. If your property has gone up 10 x but a pint of beer has also gone up 10 x and the cost of eggs has also gone up 10 x and every other property in your street has gone up 10 x, what that tells you is not that your property's worth 10 x. What it was worth is that inflation has reduced the value of money by 10 x.

Sara (00:42:29):

I actually really valued your views about the whole renting versus buying. Because when I did make the decision to finally buy and get on the market, I thought, well actually you've not incurred a lot of the fees that other people will have.

Andrew

If you want to move to rural Scotland where properties have only gone up five x, you've doubled your money in terms of properties in rural Scotland, but in terms of a nice house on a street in London or an apartment, you have not increased your wealth at all because everything else has gone up the same amount.

A lot of people have made poor decisions and bought property when interest rates were 1% expecting interest rates to always be at 1% when the long-run average of interest rates in the last 50 years has been 6% or 7%.

It really makes me sad to see children of my friends or family members just obsessing about the property ladder and causing themselves real emotional distress.

So, if you're young and you're worried about getting on the property ladder, I really wouldn't. I'd just get the best possible flat you can get. Try not to spend more than sort of 33% or 40% of your monthly income on that.

Investing in your 40’s

Sara (00:52:34):

The analogy that you use in your book is the one of the hare and the tortoise. That investment is a long-term strategy. It's not about becoming a millionaire overnight.

I’m mid-forties and a lot of my friends are in that same age bracket, so we don't have a lifetime of investment of opportunity compared to, my nephews, for example.  So what would be the advice for people that are sort of listening to this, and it's the first time that they're understanding and hearing this information, but they're in their forties or even early fifties and think, is there any point, because I don't have the same time scales.

Andrew 

100%. That's not a difficult question to answer for somebody in their forties. It is a difficult question to answer to somebody in their seventies. The average British person has 50,000 pounds in their pension at retirement, and what they need is 500,000 pounds, preferably 800,000 pounds.

This is why I'm very mission-driven because that's scandalous. We have a demographic situation where future governments are not going to be able to fund people who want to retire at 60 and live to a hundred.

You said it's not about becoming a millionaire overnight. That's right. But it is about becoming a millionaire over 20 to 40 years.

Age 20 to 60 or 25 to 65, let's say 40 years, gives you an amazing chance of becoming a millionaire. Even if you're on an average British income wage If you start that long compound market returns, you've got a really good chance of being a millionaire.

Now let's say 45 to 65, though you've missed out on all that opportunity in the compound and everything else from the last 20 years. But your advantage is you're a higher earner or you are very likely to be a higher earner. So I always talk about 20-somethings, get 25 pounds a month invested.

It's absolutely worth it.

If you start saving 25 pounds a month by direct debit in your twenties (into an ISA), the probability is that by the time you're 35, you're saving 300 pounds a month because you've been doing it your whole life. And the probability then when you are a company director, when you're 56 and you're saving 800 pounds a month is very high.

And my point here is that if you're a white-collar worker, which most people in Britain are, there's every chance that if you're 45 today, you've got another 50 years ahead of you where you could work.

There are lots of serious academics and clinicians now saying that it is not unrealistic to expect that anybody who's roughly 50 years old or younger today will be able to be functionally as young as 50 into their eighties because of what's happening technologically. And so hopefully that's a relatively positive message to set against the horrendous tragedy we have with our pension system in this country, which is also true.

Sara 

I really hear what you say that there's been a lack of this financial education. So people are, and I would've included myself in this, financially illiterate. There is also the one thing that we are governed by as human beings more than anything else, is fear.

For people that are, as you say, they're sceptical or they're fearful of investing, what's the easiest way for them to change their relationship with money?

Andrew

I was very honoured in 2016 to be invited to contribute a chapter to a book called Harriman’s, new Book of Investment Rules, a chapter called How to Invest So That Crashes Don't Matter. And, there are a number of approaches to investment that mean you don't, every risk aversion, loss aversion is a very, very fundamental psychological cognitive bias.

The way to get around that very robust innate human psychological cognitive bias is, is information, is knowledge. If you know what you're doing, if what you're doing is evidence-based, once you've got comfortable; understand what the stock market is; understand what our bond is; understand what gold is; understand inflation and interest rates, which as I said earlier, it's no harder than learning how to drive a car.

Once you're equipped with that level of knowledge, then you know what to do. You just invest every month you invest for very long periods of time. You ignore the news, you ignore financial market crashes. You have the right mix of assets, of low-risk assets and higher-risk assets based broadly on your agent stage. Because if a 30-year-old has 10,000 pounds and loses 50%, all their money's in the stock market and it falls 50% as it did in 1999 that becomes 5,000 pounds. That's pretty annoying and stressful.

That's a very different outcome in real-world outcomes to a 60-year-old who's been a top lawyer and spent 30 years building to a million pounds, who goes from a million pounds to half a million pounds. So that's why it's really important to get your mix of higher-risk and low-risk investments. Based roughly on your age.

Financial Wellbeing in the Workplace

Sara

As you know, we work with organisations across the globe around the topic of employee wellbeing. And I see financial wellbeing as being a key pillar in overall wellbeing in the workplace.

And I think financial wellbeing is also being able to manage your mindset in a way that works and creates empowerment rather than creates fear.

Where do you think organisations can be doing more than they're currently doing around financial wellbeing?

Andrew (01:07:52):

Hopefully, every HR department in the country would put a copy of or give all of their staff a copy of my book!

For employees to understand;

• investing for the long run;
• What inflation is;
• The power of compound interest;
• what the stock market is;
• Different types of ISAs;
• The nuts and bolts of Finance;
• Occupational and Private Pensions; and
• How to budget

When employees understand this, life becomes so much easier and less stressful.

It's an inexorable inevitable mathematical fact that anybody who doesn't sort out their own private arrangements for retirement is going to be poor in this country.

Why have we got a cost of living crisis? Because to combat the fact that we're not creating enough wealth, the government has invented 400 billion pounds of wealth out of thin air.

Sara 

I think as a close for anybody who's listening or for organisations that are listening to this, I do genuinely recommend Andrew's books as a very plain English guide to taking the steps, particularly if you are a UK resident.

If you are a UK or US-based organisation and would like to invest in the financial wellbeing training of your employees, we collaborate with Andrew at Plain English Finance, so please drop us a line at [email protected]