Do you really understand your investments?

Here are three things that might help. Teach people that it is generally better to earn money before it is spent, and not the other way round. Make it clear that those who cannot support themselves will not, other than in exceptional circumstances, be supported by the state. And pass the details of any new financial product to a classroom of fifteen year olds. If they cannot understand what the product is all about, then don't allow it to be sold.

One of the reasons why we worry about money is that we do not understand what has been done with it. Take the tortuous combination of the Norwich Union and Commercial Union With-Profits Funds. This, you recall, involved a series a meetings around the country at which policy-holders could learn about the process.

At these get-togethers attendees were asked a few questions. Amongst the results were these. 'Most attendees did not know a great deal about with-profits policies. Only in London did more than one in ten (the figure was 14%) claim to know 'a great deal' about them.' And 'generally the most popular reason for having chosen a with-profits policy was recommendation.'

Clearly the majority of these policy-holders have directed their savings into a vehicle about which they understand almost nothing in response to a 'recommendation' - no doubt from a financial adviser who has raked in a nice bit of commission. Most people feel worried when they are helpless. When they have lost control of their money and do not understand what is being done with it or why, they are bound to worry.

And for all the efforts of the Norwich Union - 'We've tried to avoid using jargon, but unfortunately sometimes there is no getting away from it' - I doubt whether, for all its explanatory booklets and missions to illuminate, many with-profits policy holders are any the wiser. Here for example is Norwich Union's answer to what one might assume to be a fairly simple question, 'How has all this money built up in the funds' 'inherited estates?'

'The origin of the estates we are informed, 'is difficult to describe in detail, but the introduction of 'asset share' calculations in the late 1980s allow us to conclude that current policy-holders have not contributed to the estate.' And what are 'asset share' calculations? 'There are two parts to this. It is the sum of premiums paid, together with the proportion of the policy's share of the investment return of the with-profits fund. From this are taken expenses, the cost of the guarantees, tax and other charges.'

Get it? If you do, then you are in a minority. But what you should get is this. With-profits funds were one of the first products that took savers' money and then constructed a huge wall of obfuscation around it. They were one of the first products to demonstrate a principle beloved of the savings industry - that savers will put their money into anything if it is packaged by a household name and recommended by a financial adviser.

And if you can make sure that savers do this as an act of faith rather than because they have any real idea of what is going to happen to their money, then you will have those savings for life. And you will be able to cream off a fee income for life.

The upshot is that this country is full of worried people... worried because they don't have any money... worried because they have run up huge debts... and worried because while they know that they have saved money, they have no clue what reward they will get for this in the years to come. It's not an impressive picture, is it?

This article is taken from Tom Bulfords free daily email ‘Penny Sleuth’.