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Four things that are undermining faith in financial institutions
The more people have insurance policies, the smaller the portion of the shared risk each of them assumes.
But there are several factors currently working to undermine faith in these financial institutions - which may lead more and more people to opt out, and increase the risk for everybody. One of these factors is out of our control - but the other three are well within our power as a society to fix.
What is out of our control, of course, is the unpredictability of markets themselves: dips and crashes can and do happen. The real challenge here is one of education and experience. The older a person is, the more likely they are to have lived through previous crashes, and to understand that what goes up must come down - and go up again, and down - but all in the context of a very long-term rising trend. Perhaps both private and professional investors need more reminders that wealth building is not a short-term game.
More troubling issues
But there are more troubling issues feeding the current skepticism about our financial system. Some of it has to do with outright frauds: every Bernie Madoff and Arthur Brown puts another dent in everyone's trust. Perhaps even worse, it adds another layer to the red tape that makes an already complex business even more complex and expensive.
The third factor is short of actual fraud but still smacks of unethical practice: unscrupulous or ill-educated brokers and advisers who make claims they can't justify or sell products they know to be of questionable value, just to rack up their commissions. There have been great strides in eliminating this kind of dodgy practice, but there are still all too many bad products in the market.
Finally, the actions of governments can reverberate around the world. If people can have their savings raided to fund government debt in Cyprus, can it happen anywhere? In the long run, this may be one of the most troubling developments of all.
The stakes are high: For all its many faults, the current global financial system underpins just about everything we do. Without, the world would be unrecognisable to most of us. But it's built on a foundation of trust that is, ultimately, very fragile. Maintaining that trust should be a high priority for everyone involved, not just the regulators.
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About Kevin Phillips
Kevin Phillips is the MD of idu Software. He is an entrepreneur who has built a successful business, and so has a solid understanding of the challenges and questions business owners face.![](https://cdn.bizcommunity.com/f/2408/Loeries-Tote-bag-competition.gif)
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