In the last twenty years, finances, both personal and business, have had an evolution and a transformational change thanks to new technologies. People of my generation, those of us who graduated at the beginning of the new millennium, have been among the first to live in two worlds.
We started our studies with a savings book, without a mobile phone, buying plane tickets in travel agencies and only those of us who studied economics or business had advanced knowledge of financial markets. People used to have their savings in simple products
as deposits or funds and the companies were financed by requesting bank loans or making capital increases; owners reinvested some of their savings when the business needed additional financing, and only a few companies were publicly traded or even aware of private equity funds.
Now, a quarter of a century later, the financial world has changed completely. Without intending to list the differences exhaustively, anyone opens an account online, bank branches are shrinking and the preferred communication channels are all the online banking that is being developed; TV news inundates us with terms such as “risk premium”, “inflation” or “public debt” and we have the feeling that if we do not have financial knowledge, we are in a cage from which we could end up badly hurt. Crowdfunding, crowdlending, funds and fintech have landed to take market share from financial institutions and new markets have even been created so that small companies can go public.
Economic crises and market turmoil have existed since the beginning of economic development. Many contemporary historians claim that what is happening now is similar to other events in the past. Carmen M. Reinhart and Kenneth Rogoff, two American economists, wrote the book “This time is different” in the context of the 2008 sovereign debt crisis, a historical study of economic crises that dismantles the false belief that what we happens now has never happened before and therefore does not require applying the same solutions. The authors show that, although there may be changes in context and over time, the essence of events is similar and the consequences are likely to be as well.
That said, we are now facing a world with inflation close to 10%, rising interest rates, extraordinarily high public debt in Western states, and a welfare state that is reeling as a result of the pandemic. And at the business level, the financial sector is in full transformation and the private sector is suffering a period of economic shocks with the dotcom crisis of 2001, the real estate crisis of 2006, Lehman Brothers in 2008, the euro crisis in 2012, the pandemic in 2020 and the Ukrainian war in 2022.
In this context, personal and business finance have increased their level of complexity and in recent years new financial instruments have appeared that were not known to date. On a personal level, we have fixed and variable rate loans, we can invest in bonds and fixed-income assets, they have offered us financing in distant currencies and even the possibility of investing in structured financial products or preferred shares. From the business point of view, the sources of financing are expanding towards private investors, capital markets for small and medium-sized companies and less traditional options with the appearance of international funds.
In Spain our financial culture has always been deficient and, although we have improved, we have not done so at the same pace as the changes in the sector. There are still people who make financial decisions with very little judgment and information about what they are signing up for even when the consequences can be very significant; Decisions such as taking a lifetime mortgage to buy a house, providing personal guarantees to businesses with few prospects or thinking that things cannot go wrong and making decisions such as a flight forward. What to say at the business level, when many businessmen are obsessed with maintaining unfeasible businesses instead of seeking solutions such as integrating them into larger companies, even if it means losing control; or go only to the bank loan as a source of financing without realizing that this is covered with personal guarantees; or think only about loans and more loans instead of incorporating new partners, fellow travelers or co-investors.
The financial offer is probably the most extensive we’ve had in recent years, but I’m beginning to see it as a weapon of mass destruction. As a result of the economic and financial crisis ten years ago, regulation increased substantially to try to stop the problems that occurred, but the complexity of many of them, together with the lack of financial culture of the Spanish and the “allergy” to ask, consulting and often paying for the recommendations of a good financial advisor means that there is still a long way to go. We cannot expect the State to impose laws that authorize or prohibit certain actions. It is essential that we have the responsibility and personal concern to learn and train ourselves financially, not only taking courses but also asking questions, speaking, reading specialized newspapers or attending conferences on the subject.
This is a long-term career and I firmly believe that with a little effort and more financial education we would improve and live much better.
