Personal finance is broken — and deregulation won't fix it
- Robin Powell
- 2 hours ago
- 9 min read
The UK government wants to create a "nation of investors" and is backing a multimillion-pound advertising campaign to make it happen. But two leading financial economists argue that personal finance is broken at a structural level — and the people being encouraged to invest will be the ones who pay the price.
The UK financial services industry is about to launch a national campaign to persuade more of us to invest. Organised by the Investment Association, the UK Retail Investment Campaign is reportedly costing between £20 million and £30 million over three years — though the IA disputes that figure. The creative centrepiece? A "savvy" red squirrel. Draft proposals shown to backers included AI-generated images of squirrels lounging in hot tubs and wearing Hawaiian shirts (FT subscribers can take a peek here).
Chancellor Rachel Reeves has thrown her weight behind the effort. "Britain is a world-leading financial centre and the FTSE has grown to near record highs this year," she said in December, "but we want more people to benefit from this success."
Eighteen large financial institutions — Barclays, Lloyds, NatWest, the London Stock Exchange, Fidelity International, and Vanguard among them — are funding the campaign. Several platforms pulled out, mostly over cost. One firm that withdrew told the Financial Times: "We decided instead of splurging money on a campaign, we'd cut our fees to give our customers back even more. That felt like the right call."
Even some backers seem unconvinced. "They ask for money, but there's no strategy," an insider told the FT. "Who are they trying to reach? Beginners or older savers with high cash Isa balances? It's still not clear."
Think of it as a government-backed campaign to get people eating out more — funded by the restaurant chains.
But here's the question nobody seems to be asking: is the system these people are being invited into designed to work in their interest?
"Think of it as a government-backed campaign to get people eating out more — funded by the restaurant chains."
The system is fixed — in both senses of the word
Two prominent financial economists think they know the answer. John Y. Campbell, a Harvard professor, and Tarun Ramadorai, of Imperial College London, have spent years studying how ordinary people interact with the financial system. Their conclusion, in Fixed: Why Personal Finance Is Broken and How to Make It Work for Everyone (Princeton University Press, 2025), is that the system is rigged — not by villains, but by something structural and harder to fix.
The title carries a deliberate double meaning. Personal finance is broken, they argue — "fixed" in the sense that it doesn't work. And it's "fixed" in the sense that the game is stacked.
The authors identify four ways people go wrong with money: they misperceive benefits, misperceive costs, fail to shop around, and mismanage products once they've bought them. None of this makes them stupid. Human intuition isn't built for trading off the present against the distant future under uncertainty. We're wired for immediate threats, not for comparing the total cost of ownership on a 25-year mortgage.
Profit-seeking firms don't correct these mistakes — they cater to them. It's what the Nobel laureates George Akerlof and Robert Shiller call "phishing for phools": businesses supply confused demand just as vigorously as they supply genuine need.
As Ramadorai put it at the LSE Financial Markets Group in November 2025: "The energy of capitalism has been diverted towards exploiting people's human weaknesses rather than innovating to deliver the best possible quality at the lowest possible price."
Campbell and Ramadorai aren't anti-capitalist. They're trying, as they frame it, to save capitalism from itself.
"The energy of capitalism has been diverted towards exploiting people's human weaknesses rather than innovating to deliver the best possible quality at the lowest possible price." — Tarun Ramadorai
Your good deal is someone else's bad one
The financial system doesn't just fail the people who struggle with it. It uses their mistakes to fund better deals for everyone else.
"My cheap mortgage is in part being subsidised by the mistakes of others," Campbell said on the Rational Reminder podcast in October 2025. "It's a reverse Robin Hood transfer from the poor to the rich. And once you see that, you see it everywhere. It's there in credit card rewards."
It is everywhere. Credit card late fees don't just punish the people who pay them — they fund the air miles and cashback enjoyed by prompt payers. Borrowers who fail to refinance their mortgages when rates fall pay above-market interest, lowering rates for those who do. Overdraft charges, as Ramadorai noted at the LSE, "essentially fatten banks' profits" and allow them to "offer free checking accounts." And when policyholders let their life insurance lapse, the premiums they've paid lower costs for everyone else.
It's like a restaurant where the prix fixe regulars get their meals subsidised by confused à la carte diners who can't parse the menu. Why would they complain?
Academics Xavier Gabaix and David Laibson call this a "shrouded equilibrium": firms obscure the true costs, and sophisticated consumers exploit the opacity rather than demanding transparency, because it benefits them. Campbell and Ramadorai describe it as "paying off savvy customers" — the financially literate are "cut in on the deal, whether they know it or not."
Which makes the problem deeply stubborn. A company offering a simpler, fairer product can't attract sophisticated customers — they'd rather keep the cross-subsidy. And it can't cheaply reach those who would benefit most. Worse, as the authors note, even "newly educated customers may conclude it is better to get the subsidy that naive customers provide on the existing product than to buy a new, simple product that is easy for everyone to manage."
The people who understand the system best have the least incentive to change it.
"The people who understand the system best have the least incentive to change it."
Why competition can't fix broken personal finance
The standard defence of free markets is that competition weeds out bad products and rewards good ones. In personal finance, that mechanism doesn't work.
As the authors put it, "capitalists respond to the actual demand for their products, not the demands that would exist if people were perfectly rational." When customers can't judge what they're buying, competition drives firms to compete on the wrong things.
The result is what Campbell and Ramadorai call "wasteful competition" — money poured into advertising, branch networks, and brand-building rather than into lower prices or better products. It's restaurants competing on fancy décor rather than on the food. Main streets lined with bank branches, each doing modest business, all serving to capture customer loyalty. Britons, as the old saying goes, are more likely to change their spouses than their banks.
Firms also deliberately bundle simple products into complex packages to prevent comparison shopping. The UK's PPI scandal — over 60 million policies bundled into credit agreements, often without the borrower's knowledge — was a textbook case.
And when someone does develop a better product? Financial innovations enjoy weak patent protection — unlike in pharmaceuticals, a competitor can copy the idea with minor tweaks. Any firm investing in consumer education risks "spending money to educate people who will end up as somebody else's customers."
Good products struggle to gain a foothold, bad ones persist because they're familiar, and competitive pressure entrenches the mess rather than cleaning it up.
Deregulation is the wrong medicine
"The problem isn't too much regulation, or too little. Personal finance is broken by the wrong kind — backward-looking conduct rules instead of forward-looking product design."
If competition can't fix personal finance, what about regulation? Campbell and Ramadorai think the UK's current approach is wrong in both directions.
They're sharply critical of the FCA's Consumer Duty. Campbell said on the Rational Reminder podcast that the FCA "at one point moved a little bit too much in this direction" — toward a vague obligation to treat customers right, or face punishment after the fact. The result, he argued, is "a kind of safety culture that's very dominated by lawyers and sort of cover your ass and you'll choke off innovation."
Ramadorai was blunter at the LSE. The Consumer Duty, he said, is "broad and very diffuse and it's also backward-looking — essentially, do the right thing and if you don't we'll figure it out afterwards and we'll come and punish you. Now what does that do? It inhibits innovation. It chokes you from doing the right thing."
So the Consumer Duty has problems. But the correction now under way — loosening regulation to "drive growth" — worries them just as much.
"There's something a little bit worrying about the tendency of governments to try to drive growth by eliminating financial regulation," Ramadorai warned at the same event. "This seems to be the playbook very often, which is we're not going to take the hard fiscal decisions to drive growth. What we are going to do is we're going to eliminate financial regulation. And if you do that, then we know what happens. Risks build up in the system."
Look at what's happening in the UK. The government and FCA are creating a new "targeted support" regime — sitting between generic guidance and full personalised advice — under which firms can send proactive product suggestions to consumers. HMT intends to legislate so workplace pension providers can market to members by default, unless they opt out.
That's a low-cost channel to millions of savers. Pair it with an industry-funded campaign to normalise investing, and the commercial logic is clear. As my fellow consumer advocate Mick McAteer has argued, the FCA could have achieved its goals through more proactive use of the Consumer Duty, rather than creating a weaker framework.
The problem isn't too much regulation, or too little. Personal finance is broken by the wrong kind — backward-looking conduct rules instead of forward-looking product design.
Simple, cheap, safe, easy
So if vague conduct rules don't work, and deregulation makes things worse, what would help?
Campbell and Ramadorai's answer is blunt: stop nudging, start shoving.
"Governments need to go further — actually give the system a shove," Campbell said on Rational Reminder. "And what we mean by that is we think governments should focus on product design." Behavioural nudges, he pointed out, "often have short-term effects that look promising, but then over time, the effects dissipate."
Their proposal is a "starter kit" — standardised basic products in every major category: transaction accounts, savings, insurance, mortgages, retirement, and investment funds. Each would need to be simple, cheap, safe, and easy to manage. Firms compete on quality and price within those guardrails.
Campbell illustrated the idea with a pharmacy analogy: "You have a headache, you go into the pharmacy, you look on the shelf. You can buy Advil or you can buy the generic pharmacy brand. The bottles are right next to each other. The size of the pill is the same, in each case you take two pills. The price per pill is on the shelf and you can shop."
Ramadorai made the same point at the LSE: "Let us template the right kinds of financial products, offer those templates to the financial sector and say, you must innovate within the confines of these templates. Whoever has the best technology to be able to deliver this particular template which we know society needs at the lowest cost at the highest quality are going to be the winners in this race."
For investing, this product already exists. A low-cost global index fund is the archetypal starter kit: simple, cheap, transparent, available from competing providers. The equivalent of requiring clear menu pricing and hygiene ratings on the door — then letting restaurants compete on the food.
"Governments need to go further — actually give the system a shove." — John Y. Campbell
What investors can do right now
You don't have to wait for governments to mandate a starter kit. The principles behind it can guide your decisions today.
Know your all-in costs — not just the headline fee, but platform charges, transaction costs, and everything else that chips away at your returns. Use low-cost index funds as your core holding. Diversify globally rather than betting heavily on a single market. Avoid complexity: if you can't explain a financial product in one sentence, you probably don't need it.
And tune out the marketing — glossy fund advertising, "finfluencer" tips, and well-meaning campaigns fronted by cartoon squirrels. Personal finance is broken at a system level, but the evidence on what works for individual investors has never been clearer. The industry just doesn't have much incentive to tell you about it.
Fix the kitchen first
Campbell and Ramadorai aren't trying to tear the system down. As Campbell put it: "We're interested in reforming finance to save it, rather than replacing the system in any sense." But you have to fix the kitchen before you fill the restaurant — and a cartoon squirrel in a hot tub is no substitute for structural reform.
The good news? You don't have to wait. The principles are clear, the products exist, and you now understand how the system works better than most people in it.
Resources
Akerlof, G. A., & Shiller, R. J. (2015). Phishing for Phools: The Economics of Manipulation and Deception. Princeton University Press.
Campbell, J. Y., & Ramadorai, T. (2025). Fixed: Why Personal Finance Is Broken and How to Make It Work for Everyone. Princeton University Press.
Gabaix, X., & Laibson, D. (2006). Shrouded attributes, consumer myopia, and information suppression in competitive markets. The Quarterly Journal of Economics, 121(2), 505–540.
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