July 20, 2008
In light of the impending recession, extravagant spending must be curtailed and replaced with a financial prudence that we, as a nation, conveniently forgot about many years ago.
Do you remember the children’s post office savings book? Can you remember going down to the post office with fifty pence or a pound and lodging this fortune into your account? In the early 1980s,on our (suburban, three-bed semi) road, nearly every kid had one – there was usually about a tenner in each account.
You got a great adult feeling, waiting in the queue behind the grannies with their tartan trolleys, presenting your book and withdrawing a quid. This transaction was meticulously noted and stamped in your book by the officious postmistress and, from that moment, your entrance into the world of ‘big people’ was that bit closer.
Before that, I remember Bank of Ireland piggy banks moulded in the shape of the mobile banks that used to travel around Ireland, bringing basic banking to the people. This piggy bank was like a model van, with a little slit for pennies on the top. Into this, I’d drop a few pence and shake it vigorously every weekend to see how much I had for macaroon bars.
Now, one of the most interesting upshots of our boom/bust cycle may be the return of thrift and prudence as national virtues.
When I was a child, there was a thrift infrastructure of sorts preached to many ordinary families. From the Bank of Ireland-sponsored piggy banks, to the children’s post office savings account and on to the first credit union account, people were urged to be prudent, and the state reinforced the virtue of thrift.
Many people put their children through university using credit union loans. In fact, the rapid expansion of credit unions in Ireland coincided with huge numbers of students going to university in the 1970s. (In many cases, these students were the first generation in the family to finish school, let alone go to university.)
The virtue of saving and responsible management of the family’s money seemed to be well ingrained in a society where cash was scarce.
More significantly, legislation was introduced to reinforce this – as the Post Office Acts and Credit Union Acts evidence. Ireland also legislated for trustee savings banks, mutual societies and building societies, where members/savers controlled the institutions.
People like John Hume realised the political link between thrift and ultimate prosperity when he spearheaded the credit union movement in Derry in the 1960s.Hume could see that Catholics wouldn’t be first on the list to get loans from the established banks in the North, but he also understood that building a prudent infrastructure and allowing people to borrow small amounts was essential to building prosperity.
As a result, he saw financial probity as part and parcel of his civil rights movement.
The civil rights movement in the US at the time was also characterised by the image of self-sacrifice and stoicism, rather than violence. The righteous, oppressed man would stand virtuously above his abuser and shame him.
One of those virtues was financial probity. The virtuous citizen was not flash; he was hard working, honest, home-making and prudent.
It is interesting to see, in the week of Nelson Mandela’s 90th birthday, the same streak of monetary monasticism in the great man. For Mandela, the struggle was about human dignity, inner strength and sacrifice. The virtuous man did without. He never succumbed to economic temptation, never allowed himself to be seduced by the glint in the eye of the loan shark. While all around let him down during the ANC’s asset grab of the 1990s,the old man remained above the fray.
The story of the post office savings book, the piggy bank, Mandela, Hume, mutual societies and the credit union movement reveals an acknowledgement that financial parsimony is a virtue, which should be ingrained in the DNA of a just society.
During the boom, we discarded this idea and replaced it with the implicit notion that the model citizen – the one to be envied – was the one with the most stuff – the biggest house, the fastest car and the most celebrity friends. This psychological and social movement was underpinned by a sea change in financial practice in Ireland.
The mutual societies were scrapped, as was the post office savings book. The building societies were privatised and many of the instruments of thrift, which protected ordinary and poorer people, were demolished.
In their place, a raft of spivvy, snake-oil salesmen emerged – the ‘buy now, pay later’ brigade, the nonconformist mortgage scammers, the low interest rate, credit card loanshark and the like.
However, the agents of prudence did not disappear. They simply went upmarket. They became part of the legions of wealth advisers for rich people. The ideals of the mutual societies and credit unions re-emerged in Armani suits as advisers to high-net worth individuals. The wealth management techniques of building societies became the currency of private equity advisers working in the new ‘private client’ divisions of the banks.
The agents of prudence joined the ranks of accountants and tax-specialists who provided ‘wealth protection’ services for the already rich. In contrast, the poor, who used to be protected from financial profligacy and were given a monetary education by the credit unions, were abandoned to the three-buttoned loan-sharks with too much gel in their hair.
This has led to a class division in the financial affairs of the nation. There are now two monetary classes in Ireland: the ‘investor class’ and the ‘lotto class’ (see Barbara Defoe Whitehead, ‘A Nation in Debt’; www.theamericaninterest.com).
The investor class in Ireland is rich and has the same attitude to money as that enshrined by Hume and Mandela. They have advisers who simply took the thrifty ideas of the mutual societies and went upmarket.
In contrast, Ireland now is also home to a significant ‘lotto class’. The personal financial strategy of the lotto class is as prudent and well thought-out as a lottery ticket. They are the people who giddily sign up for Ryanair credit cards at Dublin Airport before their annual hollier. They go for ‘interest only’ car finance and ‘pay as you go’ kitchen extension deals. They are the people who used to be the credit union members, whose financial predicament was gauged by friends, not loan sharks on sales commission targets.
This financial apartheid might be one of the lasting legacies of the boom. If so, it will undermine our prosperity and hamper efforts to reinvigorate the economy. No society ever borrowed its way to wealth and, if a class gulf emerges in financial management, the lotto class will get poorer, depending solely on luck.
In contrast, the investor class will get richer, protected by the virtues that made the mutual societies so successful and democratic in the first place.
Although most people can see the simple logic of this, the state must take the lead and reignite values such as prudence, thrift and sacrifice through old-fashioned initiatives such as post office savings accounts and, more importantly, through creating a financial institution that ordinary people can trust again.