When “common sense” isn’t yours

I’ve never liked the feeling of being surprised by these financial “common senses”. Compound interest or risk management, concepts that are like unwritten expectations that quietly brand you as careless if you don’t anticipate them in time, and as silly if you don’t understand them intuitively. Even worse, I publicly admit, is the feeling that if you didn’t find “compound interest” intuitive then you must be missing out on other intuitions that approve of those financial and economic behaviours. Today I want to shift the blame: not only to show how finance is not necessarily intuitive, but also to show how important it is that our other intuitions are not shaken from thinking finance is intuitive. Instead of treating myself as the problem, I want to ask what happens if I take my confusion seriously, and treat the ‘obvious’ financial wisdom as the thing that needs explaining.  This is what makes financial questions feel like “moral tests” that you always fail in, even when, I argue, your intuition and your core still hold some morally true take on the matter.

Instead of treating myself as the problem, I want to ask what happens if I treat the ‘obvious’ financial wisdom as the problem that needs explaining

I never understood what is so intuitive about insurance. As a kid, I was sure that any brute-luck disaster would be followed by opening some savings accounts, and if necessary, relying on the support of family and friends who help however they can. I remember asking my parents, in what could be considered infantile naivety, whether the payment for the health insurance just accumulates over time, like a savings account for emergencies. Suddenly I’m older, and not only is insurance a common thing for your travels, your belongings, and your health, but it’s also there for other realms that are constantly out of reach for my imagination - niche insurance becomes a new path of anxiety. “Body insurance” for women that work as models, so they’re covered if they lose their income source. Should I insure my brain that thinks for my income, my fingers that type for it, my mental health that lets me leave the house and get to work? Will I be blamed for being a financial fool if I don’t have myself insured? Am I really expected to cover myself for any and all cases of emergency?

Worst of all was coming to a philosophy class where “insurance” was used in an argument as a theoretical fix for inequality. According to the argument, if everyone is part of the same “market of resources”, the only true equality we can have is the equality of opportunity to work towards one’s life ambitions. Following one’s ambitions would lead them to procure just the resources they need for those ambitions, without excess. More importantly, he argued, being connected to your ambitions would make one aware enough to insure yourself against any risks that could harm this ambition, whatever they are. Want to be healthy? Insure against possible disabilities. Want to earn money? Insure against having no talent to work.

This argument could be debunked analytically, surely. In class, however, hearing this thought saddened the little girl in me who didn’t understand who we were paying to take care of us in cases of emergency. How could she ever insure herself for her dreams?

There’s a dissonance between being surprised by these supposedly intuitive customs of risk and finance, and financial institutions pretending their products are as humanly natural as breathing or learning to walk. It’s as if the true human response to fear and risk is “fight or flight or get a new insurance policy.”  The insurance broker shows existing products that demonstrate that you should be scared from risks you weren’t scared from previously. The insurance product has enough clientele to keep you, the new client, left out of what seems to be a common, popular fear. If you don’t see this risk mitigating product as common sense, you are either disconnected from human intuition of what is risky, or from our society at all. Of course, one grows in this financial reality and learns to think about the broker’s offer, to say no, to ask around with friends if they also purchase it.  There is a power, however, in the financial institution that represents “common sense intuitions”, the market player that “knows best”, apparently, about human fears.

It’s as if the true human response to fear and risk is “fight or flight or get a new insurance policy"

I’d go as far as arguing, however, that even the act of “asking around with friends” for financial norms causes a painful feeling of exclusion and straggling. I’m often reminded of the first time I learned my friends have started investing, and find myself asking them, half-curiously and half-helplessly: “how do you know all of this?”. The reply forms a mixed atmosphere of not gatekeeping from your friends, and my own confusion of “how was I expected to know this? Would I have never heard of this if it weren’t for this conversation?”. Often, I’ve learned, the investor friend knows that they themselves have previously found themselves surprised by the very same financial information.

The problem with these types of practices is that they always feel like a definite loss. If you just now learned to negotiate your prices, you’ve lost all the past, previous potential negotiations you could have saved on. If you just learned what interest rates are, you have been missing out on how to leverage them all along. If your parents didn't invest for you as a kid, then your entire infancy and adolescence can be considered, financially, a loss. I gratefully clarify that calling these events “losses” are in themselves, a result of the “eternal” economic view of “opportunity cost”: where every decision we make reflects a loss of potential gain from other alternatives that weren’t chosen. This is not how real choices, I argue, should be made - this is another reflection of the financial “common sense” messing with our intuition, in this example, to make decisions. Even though these losses are theoretical (the money my parents didn’t invest for me was never mine, hence, I never lost it), this financial language does emotionally pressurise us to avoid losing more. This financial principle pressurizes people into fearing the next “obvious” financial tip, the next trend around the corner.

This is why each new financial discovery feels less like learning and more like catching up

This is why each new financial discovery feels less like learning and more like catching up. When you “lose” in this system, it rarely feels like a technical error. It sounds like you weren’t disciplined enough, curious enough, grown-up enough to have known better. The shame of not keeping up doesn’t just sit in your bank account, it seeps into how you think of yourself, and your ability to be “logical” or think “logically”.

Why financial literacy can’t just be “tips & hacks”

When I first worked at a financial firm in my early 20s, I realized that I (wrongly) thought that workers’ salaries were not considered a “cost” (as it does, in economic terms). I thought that a company used their revenue to cover the costs of materials and machines, and then split the remainder “profit” with all humans involved with the project - and those were the salaries of the workers.

As many often suggest, perhaps “populistly”, financial literacy classes in schools would be useful in bridging knowledge gaps in society. It’s hard to imagine, however, how a neat ‘financial literacy’ curriculum could only include explanations of interest rates, insurances, and the like. If I had to teach a child any financial norms, I’d have so much more world-building to do. To explain why one should negotiate on prices, I’d have to explain the intuition that prices cover costs, and furthermore, that they generate profit. How could I explain how interest rates work after watching my child constantly borrow and lend their pencil to and from their schoolmates, without gaining extra pencils for it? How does one explain not how, but why, money can “make” money?

The question that I imagine follows every explanation of existing financial mechanisms to any teenager, is a curious, not even defiant, “Why?”. Why is the financial system the way it is? It’s hard to imagine how to answer this without turning the class into a lesson of history, political science, or economics. Anyone reading these words knows such a lesson is nothing but a fantasy - the same economic logic and “common sense” would shun us from these questions. Not because there are no answers, but because asking “why” would be considered simply irrelevant for true financial education, which will prepare you to participate in the system.

Marking these questions as irrelevant is painful, however. Real, actual financial literacy, in our contemporary world, must come hand in hand with some sort of ethical literacy - or rather, some consideration or discussion of how financial intuitions don’t align with otherwise valid moral intuitions. Discussing this misalignment is an invitation to treat that uneasy feeling of not knowing, not keeping up, not optimizing. It’s an invitation to consider that your moral instincts might be working just fine, and that precisely your financial instincts are the ones that lag behind.

Real, actual financial literacy, must come hand in hand with some sort of ethical literacy, some discussion of how financial intuitions don’t align with otherwise valid moral intuitions

Arguably, one could say that there always was a matter of ethics in finance, in capitalism, in economics. If economics is “making choices in the face of scarcity” (as studied in my first high school class of economics), then it is not hard to imagine how easily these choices can have ethical considerations: social, political, moral. Yet anyone that studied Economics knows these topics are not prioritised in its teaching. Economics departments are filled with practices of econometrics, game theory, allocation methods, all based on baseline assumptions that are taught as is. There isn’t any time left for the normative, for asking if the baseline assumptions of these models represent us humanly. This leads us to having B.A level economists that exceptionally execute this hyper-financial, capitalistic logic in any decision making. Even worse, I argue, is they are well equipped to keep spreading this financial logic as “common sense”, even when it isn't.

If we were to indulge in imagining economics as a kind of quiet ethics lesson, it becomes harder to believe there was ever a clean way to separate the two. The same theories that describe how markets allocate resources suddenly also actually describe how your pension is invested and if you’re going to age safely. They prove not only how your rent is determined but also if you’re going to live in a good neighbourhood. Not just how savings are generated technically, but how savings are handed over to someone else’s idea of acceptable risk. Suddenly these “purely financial decisions” have everything to do with you, your loved ones, and even your non-loved ones that live around you. The financial comes hand in hand with the ethical, and deep inside, our intuitions know it. But financial culture will suppress our intuitions, pointing you back to believing these practices are nothing but “common sense” that you’ve been consistently missing out on.

What should we do about this?

The last imagined lesson of “financial literacy for beginners" would be the most depressing of them all. It would be dedicated to revealing the “capitalistic catch”: how adopting your own moral intuitions about these financial “common sense” will not, probably, help you oppose them. Behind every thought of opposing any financial institution or financial norm - any bank, any investor, any billionaire, any interest rate - will lurk the threat of financial disorder and damage that cannot be estimated. You shouldn’t even be thinking of bringing down the investor that holds your pension investments. What will you live off of when you are old?

You’re a constant client of a financial institution that fails if it doesn’t make money off of people that don’t see financial intuitions as common sense, and yet, you need this institution to succeed to protect your future welfare.

This is the most depressing class because it explains why in a world of financial and economic constants, of macroeconomics and linked financial institutions, these financial norms are considered common sense. The pragmatic limits of opposing a financial institution that is tied to your personal and local lives, make it difficult to reject the thought that, well, all these insurances and interest rates are common sense - at least to the contemporary life I’m living. Returning to square one, all we’re left with is the “gaslighting” of our internal intuitions that finance is not “common sense”, and that there is no room for any critical moral thoughts you’re holding. But we still deserve to refuse this.

So much is being said against capitalism: of its market failures and unrepresented externalities, impact on the climate, unimaginable inequality, toll on mental health, distance from political views, infiltration into family life, decline in solidarity towards strangers (the list could go on and on…) Some are led to simply an anti-cap position (we should evade it) or a post-cap position (we should see it through until it fails enough to develop into something better).

Financial ethics would not teach better investing but develop an awareness for the moral compromises that hide in our existing, (currently) immovable financial life

To finish on an optimistic note I offer the discussion I’ve brought forward today as a potential preliminary task that expresses our dissatisfaction with capitalism. We should be working to regain confidence in our moral literacy over our financial one; understanding that not all financial rules are “common sense”, and therefore trust ourselves to re-open all moral questions that bother us, even in financial institutions. Financial ethics, if you will, would not teach better investing but develop an awareness for the moral compromises that hide in our existing, (currently) immovable financial life. This movement, whether personal or social, would help us feel at ease with all those moments that any economic voice (even our internal ones) justifies something that is mainstream-ly satisfying, but intuitively uncomfortable. We deserve this ease because we deserve to not suppress the moral intuitions that make us human.