Most people believe that the world of finance has no concern for the little guy, for all the low- and middle-income people who, after all, contribute little to the bottom line.
Today's huge companies and the financial wizards who lead them -- or buy and sell them -- may be generous to their churches, favorite charities, and families and friends, but their professional lives are defined solely by the relentless pursuit of profits.
That perception may be largely true, but not entirely so. Consider Muhammad Yunus, who won the Nobel Peace Prize last October. His Grameen Bank, founded in 1976 in Bangladesh, has offered tiny loans to some of the poorest people in the world, helping to lift many borrowers out of poverty. The Bank made a profit and grew over the years -- and has inspired similar microcredit schemes elsewhere.
But was money Yunus' ultimate motive?
In interviews, he reveals that he was actually motivated by a deep sympathy for the plight of the poor in his country. His goal of building a profitable lending business seems to have reflected his desire to believe in the trustworthiness of his clients. He tried to make a profit in microfinance in order to prove these neglected people's creditworthiness, so that he could continue lending to them.
Paradoxically, then, while Yunus was pursuing profit, he was apparently not doing it for the money. And there are others within the field of finance who are similarly motivated.
Indeed, the history of financial institutions for low-income people is largely a history of philanthropic or idealistic movements, not just activities focused entirely on the bottom line. The cooperative movement of the nineteenth and twentieth centuries was associated with a long list of financial and insurance institutions -- including savings banks, building societies and savings-and-loan societies -- to help less-advantaged people.
Such philanthropic finance continues today. Peter Tufano, a finance professor at Harvard Business School, has quietly been doing nonprofit work with the foundation he created, Doorways to Dreams, to help low-income people improve their financial prospects. As far as I can determine in talking with him, his purpose is entirely high-minded. He does not seem to care about making money for himself.
According to Tufano, the fundamental problem in encouraging low-income people to save is that they need the money not just to manage their lives years in the future, when they retire, but also to deal with short-term crises. But if government programs designed to promote saving by low-income people don't tie up their money for many years until retirement, they will often succumb to temptation and spend the money frivolously.
Tufano approaches the problem with real sympathy for these people, and a realistic idea about how to help them: premium savings bonds. In addition to normal interest payments, these bonds have an attached lottery -- an enticement to keep the money in savings.
Low-income people manifestly enjoy lotteries, and they will acquire the habit of looking forward to the lottery dates, which will deter them from cashing in their bonds. But if a real emergency arises, they can get their money.
In fact, lottery bonds have a long history. In 1694, the English government issued a 10 percent 16-year bond called "the Million Adventure," which awarded prizes randomly each year to its holders. Likewise, Harold MacMillan's government created a lottery bonds program -- called premium bonds, or "saving with a thrill" -- in the UK in 1956.
The program was controversial at first: Many viewed it as immoral, because of its connection with gambling. But the program has grown, and today premium bonds have a place in the saving portfolio of 23 million people, almost 40 percent of the UK population. Sweden, too, has such bonds, as do other countries.
But, while such bonds have succeeded in raising savings rates in the countries that have created them, they have not had advocates in the US. Tufano's strategy to change that is to test his ideas in partnership with firms.
He has launched pilot tests of "prize-linked" accounts in cooperation with Centra Credit Union, based in Columbus, Indiana. If the product helps families save, he hopes to persuade lawmakers to make this type of savings scheme easier to offer in the US.
Tufano is the first to admit that some of the best ideas for financial innovation are very old, even hundreds of years old. They may get lost for a while, and initially they may sound strange when they are rediscovered, but people like Yunus and Tufano show that they can be updated and implemented with the help of disinterested but passionate advocacy. Their inherent spirit of goodwill, and the goodwill they can inspire from other financial professionals, holds out the hope of a brighter future to everyone, especially those who are most in need.
Robert Shiller is a professor of Economics at Yale University and Chief Economist at MacroMarkets LLC.
sCopyright: Project Syndicate
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