Can debt really be considered good? And do we need more of it?
At Tortoise Media’s recent ‘The Future of Money’ event I was invited to consider this alongside finance coach and author of Black Girl Finance, Selina Flavius, and the co-author of Angrynomics, Eric Lonergan.
There’s no doubt that Covid-19 has resulted in more people experiencing uncomfortable levels of debt – many for the first time in their lives. People who have previously been able to manage themselves financially are now struggling to pay for their phone and other bills – something they hadn’t anticipated was ever going to be a challenge – as well as having to seek advice about the benefits system. And it’s not just those who’ve lost their livelihoods who are worried about money - Selina Flavius drew attention to the uncertainty around future employment prospects, meaning many people are now saving in the event of potential redundancy rather than for a holiday or a new car.
A responsible stance is also the long-term view
Struggling with debt can make people feel vulnerable, and this makes it harder to muster up the courage to take that first step to address the issue. At Capita we provide customer contact services for a wide range of different organisations – including for utilities and telecoms – and we know how a person is treated is all-important, particularly during a pandemic. It goes without saying that the most fundamental consideration is to ensure people are treated with respect and to remember that we owe people a duty of care.
With so many people at financial risk, organisations have the opportunity and –perhaps responsibility to alleviate some of that stress whilst creating a unique connection between their brand and their customers. How you treat your customers now will be the make or break of a long-term relationship – one which will benefit those companies who have established a socially-responsible reputation.
Rather than leave customers feeling uncomfortable, this is a chance to reassure them by offering a healthy dose of empathy alongside realistic payment options. Sometimes a digital route of communication, such as a smart chatbot, may be best for those people too embarrassed to speak in person, whereas others will prefer the reassurance of a real human on the other end of the phone. The key is to work with customers and understand their needs to make that experience less awkward.
Education, education, education
We discussed the need for better financial literacy. Selina mentioned the space she’s created for black women to talk about money and we agreed that actually we all need to educate ourselves when it comes to our finances. This is an area where employers can take the lead. One such organisation is a financial wellbeing fintech, called Level, which helps educate employees about managing their money, allowing them to borrow against their paycheque if needed.
With the rise in apps enabling people to more easily invest and dabble in small amounts, financial education also needs to keep pace. It’s important to recognise that financial literacy doesn’t need to be just about budgeting and preventing debt, but about growing wealth too. We need to recognise that people are accessing opportunities in new ways and support them in fully understanding how to do this responsibly.
Prevention rather than cure
We also considered how artificial intelligence (AI) and analytics have made it possible for organisations to better understand customers, both as they approach debt and start getting out of it. This is particularly relevant for companies – such as those in gaming and financial services – who are faced with the paradox of seeking additional business whilst remaining both corporately responsible and compliant with regulations to protect vulnerable people.
One way of helping these companies is with the right technology – such as the systems we’ve designed at Capita - which uses data and AI to identify those who are more vulnerable and therefore help avoid them moving into unmanageable debt.
The role of Government and borrowing
According to Eric Lonergan, co-author of Angrynomics, we need more borrowing by government and the private sector. He talked about the very low rate of interest on government debt and the opportunity this offers for capital investment to revive the economy post Covid.
Eric advocates the idea of dual interest rates, with targeted lending at negative interest rates allowing people to deposit money and to earn decent levels of interest in the way the Bank of Japan and the European Central Bank have done. He suggested that this could be used to the greater good, such as boosting the green economy – as well as easing pressure on households by bringing mortgage payments down. He suggested that the dual rate would also avoid penalising those people who feel they’ve saved responsibly who might otherwise feel cheated by the economy when interest rates are low.
What might be surprising is that none of the panel were totally anti-debt. It was recognised that there’s a considerable difference between someone who’s in danger of losing their standard of living and someone who is borrowing money to improve their lives, for example to get on the property ladder or further their education. The broad principle is that we need to run up good debt without running up bad debt – rather like good cholesterol and bad cholesterol – and that the Government, employers and businesses have an important role to play to improve financial health at a national, local and personal level.
