Can Finance Save the World? by Bertrand Badré

Author:Bertrand Badré
Language: eng
Format: epub
Publisher: Berrett-Koehler Publishers
Published: 2018-03-15T04:00:00+00:00

Making Finance Intelligible for All

Into this culture of accountability that is to inform the reinvention of the system, we must integrate the needs of education. Finance has too often hidden behind the sophistication of its instruments, but its fundamental mechanisms are simple if you just take the time to explain them. Finance has tried for too long to make discussions unintelligible, sometimes through complacency, sometimes through bad faith or dishonesty. It may have seemed disdainful of the populations who nonetheless, through their money, fed into it. It is time for the players involved to commit to explaining systematically what they are doing. While access to finance is a determining factor of individual freedom, this freedom can be exercised only with a minimum level of knowledge. Every citizen of the world must be able to understand what it means to save, lend, and invest, and what these activities contribute to the economy. Without that, we will never be able to rebuild communities’ trust in finance. The Dodd-Frank Act took a noteworthy step in this direction by creating a bureau of financial education and consumer protection, which is responsible for informing the public and analyzing the products provided to them. The European Union has put effort into its own online education tool, the Consumer Classroom,4 to improve consumer awareness of financial matters and credit. These efforts naturally involve an attempt to answer more technical questions, including some of the least understood, such as those on accounting. They must, however, go beyond these first steps, and I would expect the education system to integrate more of these aspects in the curriculum.

We also have to start questioning the way financials are presented. The current accounting system, based on the so-called mark-to-market approach, in reality a liquidation value approach, is certainly consistent, but it has significant consequences in terms of economic reasoning: when you systematically reckon in market value or in replacement value, you affect the manner in which you think about the whole. To avoid this bias, you have to encourage integrated reporting efforts that aim to boil down a company’s entire strategy into a few intelligible pages, rather than the 500-plus-page annual reports that get published. It is more important and necessary to be able to report in plain English on what a company is doing and with which objective than it is to just pile up pages in an opaque manner.

All financial professionals, all business and global institution leaders, must be able to contribute to such efforts and ensure that these efforts meet expectations without creating a new layer of complexity. A fundamental responsibility of our democracies is to remain accessible to the public, to allow citizens and employees to understand the larger goals of a government or a company, to provide these reform strategies, and to assist humankind in grasping the complexity of the world without oversimplifying.

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