A review of 'The Spirit Level' by Richard Wilkinson and Kate Pickett

As mentioned in my last post, Jian has recently told me about  The Spirit Level, by Richard Wilkinson and Kate Pickett. Although it is not wholly personal-finance related, it covers topics such as financial equality among others, and so I asked him to review it for the blog. Here are his thoughts..PF

As Penny knows, I hadn't heard of this book or its authors when I spotted it at Heathrow while waiting for our flight to Athens. However, it looked like my sort of thing, so off it went into the rucksack for later perusal.

Yes, I paid for it.

The Spirit Level (subtitle: Why More Equal Societies Almost Always Do Better) is basically a popular sociology book by two British researchers, Richard Wilkinson and Kate Pickett. It is a summary of research conducted by the authors about the associations of various social outcomes and variables (including physical health, mental health, drug abuse, education, and imprisonment) with financial equality in around twenty developed nations (such as the UK, US, Japan, and Sweden) and the 50 states of the United States. Financial equality being, basically, how narrow the distribution of wages are in that state or nation. It's not about social equality, or gender equality, or racial equality, though all those are discussed later. 

They're pretty clear about how they conducted the research, having mainly obtained the figures from objective censuses and United Nations records. The data is generally presented as scatter plots; there's a nice little chapter at the beginning about how scatter plots work, and how a statistically significant effect might be detected. 

(A quick aside for the statistically minded: Yes, this is generally cross-sectional, and so gives at first instance no chronological data, though this is covered in one of the chapters concerning increasing inequality in the US and UK and the effect on outcomes. No, scatter plots are not necessarily the best tool for detecting this sort of association. No, they didn't say how many associations they tested, and so they could have cherry-picked the significant ones; however, the fact that the vast majority of the associations shown are pretty straightforward and not statistically nudged for significance does make this very unlikely.)

The book therefore consists of two parts after a brief discussion of methods: results and conclusions, and what to do about said conclusions. First part: as you might expect, financial equality has been going down the tubes in the US and UK over the last fifty years. And financially equal nations are healthier (both physically and mentally), have less crime, less teen pregnancy (though, in an odd exception, Japan – a financially pretty equal nation – has high rates of teen pregnancy. However, it's almost all married teen pregnancy), fewer people in prison, less drug abuse, and higher social mobility, than unequal nations. Shocker, eh? In other words, there's good hard data that countries with a few very rich people and a lot of very poor people (top scorers: USA, UK, Portugal), are worse off in almost every way than countries with more even wealth distribution (top scorers: Japan, pretty much all of Scandinavia). The conclusion is, unequal countries suffer from an overall lack of trust and security: people don't trust each other, so they're out for themselves, so they commit crimes, cheat on their taxes, and vote for police and prisons rather than health care and drug rehabilitation. As a result, everyone suffers, including the rich. 

All the data is, as noted before, from rich countries (the top twenty most developed and wealthy nations); that's what the book is concerned with. So no comparisons with Cuba, for instance, except to note that yes, Americans generally have lower mortality and higher infant mortality than Cubans.

By the way, the same pattern holds across the different states of the USA. 

You might be feeling a bit depressed by now, I certainly was; while the analysis presented is hardly invulnerable to criticism, it's very difficult to deflect or write off the argument unless you really are the most blinkered kind of self-deceiving idiot. And I hope I'm not. So, I asked, what can I, or we, do about this? Isn't this the fate of all humanity, to develop less equal societies where selfishness and ambition are rewarded over altruism and co-operation? After all, the equal European way seems to be failing; the financial crisis is driving various European governments to cur public service funding and encourage less equal financial policies. 

Well no, say the authors. They cite a game where you form participants into pairs of offerers and recipients. The pairs never meet, and never play this game again, to avoid learning behaviour. All participants are told that there is, for each pair, a pot of £100 (or $100, or whatever). The offerer is asked to offer the recipient, by note or similar, a share of this money. If the recipient accepts this share, both get the money; if he refuses, neither do. The researchers were expecting an average accepted offer of about £30 (in other words, this would be about the threshold at which most recipients will accept a share, however unequal, rather than get no money at all. More would be more than most offerers would be willing to give, and less would be less than most recipients would swallow their pride in order to accept). Actually, the average accepted offer was about £48. It turns out, we are inclined to reward generosity and punish selfishness more than you might think.

The authors continue to discuss how to make society more equal. One way is to encourage companies and organisations who treat their employees more equally or are genuinely co-operative, and discourage those that don't: they cite the Co-op (shocker!) and John Lewis in the UK as good companies to support. Another way is to shake off the Cold War idea that we can't have both equality and liberty; as we have seen, less equal societies are less free societies, with less social mobility and more prisons. We should encourage our politicians and business leaders to stop bandaging the cracks; a measure to reduce drinking by increasing the cost of alcohol (to get all topical in the UK) may reduce drinking a little, but really all it does is increase profits for the government and for drink manufacturers. People drink themselves blind at the weekend because they're stressed, and it's a good escape; and they're stressed, for instance, because they have no money, are in debt, and can't leave their jobs. And these things are worse because of inequality. Change that, and they might stop drinking so much. Similarly, there's no point kidding ourselves that we'll reduce our carbon footprints and save the planet with advances in green technology; if we save ourselves a bit of ecological resource with low-energy light-bulbs or electric cars, we'll just spend it again. And again. Because of the way our societies are.

There are two ways, say the authors, to improve financial equality in societies. One is the Japanese way, which is to have more equal incomes before benefits; in other words, have a society where the most highly paid aren't paid much more than the least well paid. The other is the Scandinavian way, which is to have benefits, taxes, and other governmental measures to increase the effective incomes of the least well off. The second options requires more state input and control, but does at least allow for those who are unemployed to be supported by society. And from our starting point of wide disparity in incomes, it probably makes more sense.

Phew! Sorry if I've been a bit long-winded. Basically, it's a fantastic read, and very well communicated. Whether you agree or disagree with its agenda and conclusions, give it a go. Personally, I think it's a bit thin on practical solutions, but that's hardly very surprising, and it would make a whole separate book in itself. Maybe that's due.

The ladies of Cranford: role models for the 21st century?

I haven't been around much lately; a combination of freelance work, financial capability training, and other bits and pieces have taken up my time.  For a while, however, I have been meaning to review one of my favourite books, Cranford.  (There is also a very good BBC television series, starring Judi Dench, which is true to the books in spirit, if not in the letter of the plot.)

Elizabeth Gaskell's wonderful town of Cranford is populated almost entirely by lone women. Miss Matty Jenkyns and her sister Deborah are the main characters when the stories begin. They are the daughters of a clergyman, with limited means, who live in a small, comfortable house in the centre of the town. They are generous, thoughtful friends and hosts, but there is no formality or grandeur about their lives.

They have a single servant, and practice economical habits - Miss Matty for instance being particularly concerned about not wasting candles. New dresses are a rarity for them and their friends, although Miss Matty relishes the process of choosing a dress when the occasion arises, and the ladies buy the occasional pretty new bonnet for variety, and to show that they are following the fashions.

After Miss Deborah's death, and a subsequent disaster, Miss Matty's financial resources are reduced considerably. Movingly, Miss Matty's friends, themselves all relatively impoverished, contribute without her knowledge to supplement her income, and Miss Matty sets up a small tea shop from her home, which she runs quite successfully until she is rescued from her financial troubles...

'There [in Cranford] economy was always 'elegant' and money-spending always 'vulgar and ostentatious'; a sort of sour-grapeism which made us all very peaceful and satisfied'.

I am thinking of adopting the Cranford ladies as my role models in their approach to life, as well as their finances.... They enjoy life, adapt to changing circumstances, are imaginative, thrifty, creative, and charitable. Within the limits of their society and time, they take control of their lives.

Frugality versus conspicuous consumption - or what about a middle way?

I've just read Thomas Stanley's latest book, 'Stop acting rich, and start living like a real millionaire'. Although it contained some interesting information, I didn't enjoy it as much as his other work. My intepretation of his views is that unless you are a 'glitteringly rich' person, there are really two options in terms of how you live. You can either consume mindlessly, for status related reasons, or you can be frugal. What I didn't think rang true about this was that people have different priorities, and perhaps some of their consumption habits are about appreciation of real and lasting quality in certain areas of their life, for which they are prepared to pay more, while they may be frugal in other things.

I wondered how Dr Stanley would categorise me, as I think my lifestyle is, like many people's, a mixture.

-I always pay off my credit card. have no debts apart from mortgage, save money regularly, and have always contributed fully to a pension
-I spend most evenings eating home-cooked meals and watching programmes recorded from television, or reading books - many of them from the local library
-I usually take a packed lunch to work
-If eating out, I often use vouchers when going to a pizza or pasta restaurant; otherwise I may well eat at a noodle bar for around £5 for a main meal
- I have very rarely spent more than £10 on a bottle of wine; I have recently started buying wine in bulk from Majestic.
-I buy cheap cleaning materials, tinned tomatoes, tissues and kitchen towel.

On the other hand,
-I have recently bought a new coat - written about at length here - at great expense. I bought this not for status, and in fact it does not have a recognisable label, but because it is a beautiful thing which I intend to wear for many years.
-When not eating at a chain Italian or noodle bar, I sometimes go to lovely restaurants or gastro pubs, and eat steak or venison pie.
-My last holiday was in a rented cottage in the Lake District... but I have spent a weekend in New York.
-I like buying some food at Waitrose as a treat.

I could go on. My point is essentially that I am concerned by a mentality which promotes frugality in every area of life. I absolutely agree with the view that there should be more to life than spending money, and many of the things I enjoy are free, or cost very little. However, there are experiences and possessions which can enhance life, and I would query an approach which would deny all of these to someone with reasonable financial stability. (This does not apply to anything bought on expensive credit, especially credit cards; I think elimination of such debt should always be a top priority.)

My preferred approach is to eliminate debt, establish some savings, and a pattern of saving, and to allow some luxuries, prioritising those areas where you feel that spending money will enhance your enjoyment of life, and spending less on things that do not matter to you as much. It is of course possible to minimise spending in all areas, but unless you are doing this with a specific goal in mind, or as a short-term solution, is that really going to lead to a happy life?

'The Thrift Book' by India Knight

India Knight, who wrote an earlier book 'The Shops', about her love of shopping, writes here of how she recently came close to bankruptcy, from a lack of attention to her money, rather than low earnings, and thereafter changed her spending habits. She is also keen to encourage preserving resources from an environmental point of view, and her writing is influenced by that.

This book is largely about living well without spending huge amounts, and includes sections on food, clothes, beauty products and so on. It also includes a chapter on personal finance where she explains important financial terms and concepts in a very basic way.

I have a different sort of life from the author in many ways; I do not live in London, and have never had her self-confessed phobia about financial issues. However, there were quite a few ideas I liked, and some useful tips.

On clothes, she recommends buying a small number of quality items of clothing, including possibly vintage clothes, and looking after them well. (She reminded me of the existence of spray starch, and I have now bought some to use on my shirts; it definitely makes them feel newer.) The Lakeland home dry cleaning kit she mentions is something I will definitely be trying out.

On making things, she pointed out many inspiring websites and blogs.

On beauty products, she includes a section on how to look expensive, and useful information on home hair dyeing and the differences, or lack thereof, between some cheap and expensive make-up brands.

She also writes about growing food; this is something I am keen to start doing, but am rather nervous about, and her approach, and the websites mentioned, made me feel this was definitely something worth attempting.

On eating out, she encourages people to go for a set lunch at a really special restaurant, rather than either spending a fortune on dinner at a fancy place, or a fair amount somewhere less inspiring.

In summary, I did enjoy this book. I thought that her perspective, as someone who has come close to bankruptcy, was an interesting one, although many of the tips would only really apply to those who had been used to a high-spending, city lifestyle, involving a lot of shopping and eating out. It would be quite useful for anyone not very interested in, or familiar with, personal finance, as a starting point. Although it is very up-to-date, I actually much preferred 'Orchids on Your Budget', which I found more inspiring.

The Millionaire Mind by Thomas Stanley, and home-buying

This was the final element of Thomas Stanley's book that interested me, particularly because most people imagine that the wealthy live in huge mansions with swimming pools, and hundreds of bedrooms, and that is evidently not the case.

-Most of the wealthy people Dr Stanley surveyed for his book had lived in the same home for many years.
-Over half of them lived in houses with fewer than four bedrooms.
-They tended to live in 'nice neighbourhoods', where the houses were not newly built. (He describes them as old houses, but this is by American, not UK, standards!)
-This was partly because these areas tended to have good state schools, but also because better historical price information would be available for areas with older houses.
-These people would not take on large mortgages in order to buy a house, in the hope of benefiting from future price rises, because of the risks involved.
-They would not take advantage of a high-earning year or two to sign up for a huge mortgage.
-They would not generally build their own houses, unless they had knowledge in this area – lawyers were particularly averse to doing so! - because of the time, risk and expense involved.
-They would take their time to research an area, and never buy a house in a hurry, particularly not in an unfamiliar geographical area even if they had to relocate for work.

So, in summary, they generally buy old, reasonable-sized houses in nice areas, near good schools, and intend to stay there long-term rather than trying to make a profit and move on. And barely a swimming pool in sight....

'The Millionaire Mind' and the economically productive household

Following on from last week's post about 'The Millionaire Mind' and vocation, this week I am looking at what this book has to say about household spending. In one chapter, Thomas Stanley analyses the spending patterns of the wealthy, and notes that the members of wealthy households are more likely than others to be in the habit of doing the following things:

-Changing telephone providers to benefit from cheaper deals
-Having shoes repaired
-Having furniture re-upholstered instead of buying new
-Using discount coupons when shopping
-Buying household supplies in bulk

He points out that although doing each of these things may result in a fairly small weekly or monthly saving, over many years, the amounts saved will be significant.

I found one of Dr Stanley's examples interesting: that of a wealthy woman who, together with her husband, lived in a very nice house in an expensive neighbourhood. She bought high-quality clothes, but from second-hand shops rather than bought new; she ate good-quality, healthy food, but used coupons, planning her meals in advance, and cooking from scratch, and did not drive an expensive car. She was happy to spend a lot of money on antique furniture, partly because good quality furniture would last for a long time and be worth repairing or re-upholstering, but also because antiques would generally hold their value over time, if not increase, and could be passed on to future generations.

The lessons I took from this chapter were that it is worthwhile taking a long term view as small habits can lead to significant savings of time; it is worth prioritising what you want to spend money on, and allocating resources accordingly; and that it makes sense to spend money on things which will hold their value, or increase, like property or antique furniture, rather than consumer goods, expensive cars, or cheap furniture, which will not.

"Orchids on Your Budget, or Live Smartly on What You Have"

I mentioned that I had ordered this book a week or two ago; I have now read it, and been delighted by more than the title. The author wrote the 1930s bestseller "Live Alone and Like it" before writing "Orchids on Your Budget". This book is not aimed at those with serious financial problems, but at people interested in living well, responsibly and stylishly on moderate means.

It is filled with creative and inspiring ideas, some of which I will definitely revisit in future posts, but the main points I took from it were the following lessons:

-Don't feel you have to maintain a front of a fancy lifestyle to impress others, while scraping a miserable existence behind the scenes. Instead, forget others' expectations, take down the front and spend the money saved on things you care about.
-Work out what you want, and then work away of having that, whether by generating more money - and she offers many creative suggestions for doing so - or by making savings in other areas.
-Know the difference between real luxuries and habits. E.g don't buy a daily newspaper out of habit if you don't actually read it.
-Don't spend so much on housing, or food, that you don't have enough money for miscellaneous extras, whether those are orchids, holidays or theatre trips, or savings. The author is an advocate of getting a slightly smaller house or flat than you think you can afford; this will save not only on rent or mortgage, but also on the extra maintenance of a larger place.
-Plan ahead, whether in relation to your clothes - she suggests adopting a single colour for your wardrobe each year, and sticking to it fairly strictly - or entertaining.
-Play to your strengths, in terms of your assets and skills. My favourite example was that of a woman with a lovely silver tea service, whose preferred form of entertaining was therefore to have tea parties.
-Enjoy the challenge of doing a lot, and having fun, on a little money.
-Don't assume that you would be happier, better dressed and so on, if you were rich. The author considers that those who know about clothes will be well-dressed regardless of how much money they have; they spend time and effort instead of money.
-Do your social duty; return invitations, even if you can't afford a lavish party, and take responsibility for your problems if you do get into serious financial difficulty.
-Don't follow other people's rules on budgeting too slavishly; everyone is different, and you need to adopt a system that makes sense to you.

The Millionaire Mind by Thomas Stanley, and vocation

I have recently re-read "The Millionaire Mind" by Thomas J Stanley, partly to refresh my memory about this very interesting book, and also with a view to reviewing it here. I realised, however, that it addressed so many themes that I would prefer to write about a few of them in turn. If you have not encountered this book before then I do recommend it; following on from "The Millionaire Next Door", by the same author, it covers the characteristics of those who become wealthy in America.

Contrary to what you may expect from the title, and my description above, this is not a self-help book, and there is nothing gimmicky about it, but instead it is a very detailed academic analysis of how those who become wealthy do so, and the factors in terms of personality, profession, and financial approach which contribute to their success. (The author is an academic and university teacher.)

On re-reading, I was particularly struck by what Dr Stanley says about the importance of vocation for those who become wealthy. I have sometimes felt that one seems to have to choose between earning a good salary and doing enjoyable and interesting work. I have recently concluded, and this was reinforced by what I read here, that it might actually be unwise to stick with a career one does not love, quite apart from the unhappiness involved in doing so, because of the need to compete with others who are more genuinely motivated and enthusiastic, which over time would begin to tell.

I found it very interesting and encouraging to read the probably obvious-to-everyone- else fact that those who are financially successful in their work generally have great enthusiasm for what they do, not purely as a means of making a living, but as a vocation which uses their talents and suits their interests fully. It was also good to read the story of one highly successful sales man who left, or was dismissed from, 9 sales jobs before finding one to which he was ideally suited, and in which he was highly successful and contented.

Book Review: "A Guide to Elegance" by Genevieve Antoine Dariaux

This may sound like a frivolous book to be reviewing for a blog supposedly about personal finance, but actually I found the advice it contained extremely useful and practical, assuming that the topics of clothes and style are of interest to you in the first place. As I have mentioned before, I find clothes-buying an area where I am naturally inclined to spend money.

This book, whose full title is "A Guide to Elegance for every woman who wants to be well and properly dressed on all occasions" was originally published in 1964, though was updated and re-published in 2003. Though some of the advice, written as an A to Z of clothing-related themes, harks back to a more genteel era, with the suggestion of different outfits for morning and afternoon, cocktail parties and weekends away, sounding in many cases more like 1934 than 1964, much of it remains entirely applicable.

Mme Dariaux considers that Frenchwomen tend to have far fewer clothes than their American counterparts, partly because they are less exposed to advertising, but that the garments they do own tend to be of far better quality. She notes, and this was one of my favourite points in the book, that a woman's aim should be to own a single perfect outfit for every possible occasion, and that there is no stigma attached to wearing the same dress on many occasions.

Other advice is to invest fairly heavily in a good quality, and ideally colourful, winter coat, possibly bought with a skirt in a matching colour, as this should last for several years, and to take the opportunity of a prosperous phase in life to acquire some good jewellery, handbags, a gold compact, a nice umbrella - rather than to buy fashionable dresses which will not stand the test of time.

Under the heading of "budget", is the surprisingly short list of items that the author considers essential to a woman's wardrobe; this is expanded upon in the "Ideal Wardrobe" section.

Her advice on bargains is that whether an item is really a bargain has little to do with its initial cost, and everything to do with how much use and pleasure you derive from it over time. The author also wisely counsels against buying anything, particularly in a sale, because it is bound to be "useful"; you should love it.

In summary, I thought this was an excellent, and very encouraging book. It left me feeling that if I could manage to take a long-term view, plan, and save up for clothes that I really wanted, I would end up better dressed, without having spent too much, and with less clutter in my wardrobe.

"Orchids on Your Budget, or Live Smartly on What You Have"

I spotted this wonderfully-titled book in Vogue earlier this week, where it featured in a money-saving feature. It is about living elegantly on a small budget, and was written in 1937. I can't wait to receive my copy....(Sadly, this was not featured in my library catalogue, but I decided that it sounded worth buying.) I will report back in due course.

Book review "Anybody Can Do Anything" by Betty MacDonald

I don't buy many new books these days - I'll write more about that in another post - but on a recent trip to Hay-on-Wye spent many happy hours browsing through the secondhand bookshops there, and as many the books were £1 or less each, I picked up some interesting bargains.

One of them was "Anybody Can Do Anything" by Betty MacDonald. It was an old-fashioned red hardback, and I was drawn to it as I am susceptible to self-help books, and the idea of a 1940s self-help book was rather appealing. I randomly opened it, read a paragraph or two, laughed, and decided to invest 50p. Anyway, it is a marvellous book; not a self-help book but very topical, as it is an autobiography of a woman in depression-era America, with stories about the bizarre jobs her resourceful, if rather bossy, sister Mary finds for her and other members of the family, and the economical lifestyle her family adopts. I particularly liked the idea of her mother's Saturday evening chilli evenings to which a random assortment of friends are invited, and the clothes-sharing system operated between Betty and her sisters, under which whoever wakes up first gets the best outfit for the day.

It is a very heart-warming story, as the title suggests, and I did find myself believing that anybody really can do anything; Mary enlists her mother to write a radio play, which runs for years; their brother undertakes a series of swaps of his possessions which get him a car so beautiful that Betty's colleagues won't speak to her after they've seen her in it, and Betty herself, hilariously self-deprecating about her lack of office skills, eventually becomes a successful writer.

(Since reading the book, I have discovered that it is part of a popular series, beginning with "The Egg and I", which describes her experiences of marriage to a chicken farmer; I am looking forward to reading that, and the rest of the series.)

A bizarre coincidence: driving home one evening after discussing this book with my sister, who loved it, too, I heard it being read as Radio 4's "book at bedtime".