Fixing a Broken Money System with Tarun Ramadorai

19:11Tarun Ramadorai:There's a very entry-level answer to that and a slightly more sophisticated answer to that. The very entry-level answer to that is you should pick a broad-based diversified index of international stocks weighted according to their market capitalization. I mean, that would be a simple first step that most financial economists would find uncontroversial. But a slightly more complicated answer to that, which is not very complicated, is that the asset allocation that you have in your total portfolio should adjust according to your age and according to your wealth. Put differently, when you're young and you have your whole life ahead of you, you should be comfortable taking a larger proportion of stocks in your portfolio and a smaller proportion of bonds because you have a longer period of time over which that will become less risky and the long run expected return is going to be high on that product.

20:03Tarun Ramadorai:But as you get older and older and as you approach retirement, that asset allocation has got to shift. So it moves away from stocks towards bonds. And this is what we have. And they're called target date funds. There's readily available products. Target date funds are available at fairly low cost. Simple products, they automatically adjust your asset allocation based on your age. And that works great. Now, there's another wrinkle, which is you can make this a bit more complicated, which is that finance theory tells you that it shouldn't just adjust with respect to your age, it should also adjust with respect to your wealth.

20:37Tarun Ramadorai:The wealthier you get in the product, the less risk you should be taking on. You should be dialing back a little bit on the risk at that stage. And maybe the stock bond allocation should shift back to where it's bonds a little bit. But that's not very hard to do.

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21:41Guy Kawasaki:Learn more at CapitalOne.com slash business cards. You're listening to Remarkable People with Guy Kawasaki. When I was reading your book, one surprise was this thing about mutual funds. Another surprise was that you highly recommended for young people that they buy stock. And I thought that was very interesting because it seems like most people think stock is a total crapshoot. But you're saying that if you look at the trends in stock, it is a very high return, right?

22:14Tarun Ramadorai:Yeah, I think it's not even about the fact that there's a very high return. This is one of those wonderful bits of financial economics where you can actually prove something to be the case, which is to say, imagine that stocks are, as you say, there's a crapshoot. There's risk associated with them. Of course, there's risk associated with them. But the question is, is that risk more often than not going to result in a payoff? Okay, which is to say, over the very long run, yes, stocks have been extremely volatile, we all know that. But over the very long run, I think we have a pretty good sense across countries, across geographies, across time periods, that stocks outperform bonds by four to 6 % per annum, on average, taken over a longer period of time.

22:59Tarun Ramadorai:What does that mean? It means that it's a positive expected value bet in the language of financial economics. What does that mean? It means that even though it's risky, every person should have at least a small amount of something that has a positive payoff in expectation. You can prove that. And so everyone should take even just a little bit of stocks in their portfolio.

23:22Guy Kawasaki:A dumb question, but what is, in more specific terms, a little bit? Is it 5%, 10%, 25%, 49 %? What is a little bit? Yeah.

23:36Tarun Ramadorai:What I mean by that is when I say a little bit, I guess what I'm trying to say is everyone should participate to a certain extent. Now, your question is, what is the extent to which we should participate. And I think what is coming out through this is that there's a fixed cost associated with participating. If you're very wealthy and if you have a lot of disposable wealth that you can put away, then in some sense, the costs of opening up a brokerage account, any fees that you have to make, any sort of payments that you have to make actually turn out to be a very small percentage of that total wealth.

24:09Tarun Ramadorai:So in that sense, one would advocate putting a substantially larger amount of one's portfolio in that. In fact, if you had$100 of disposable wealth that you were supposed to allocate, then we would imagine that depending on your age, again, and your wealth level, anywhere between 80 % of your portfolio and 40 % of your portfolio should be in a broad-based diversified stock index is what one would normally advise. Now, this is aside from all of the other things that you might have in your portfolio, like housing and education and so on.

24:42Guy Kawasaki:Just as a point of clarification, because I myself do not know what the answer is, what is the difference between an index fund and a mutual fund?

24:52Tarun Ramadorai:An index fund is simply taking everything that's out there and then just putting it into one single bundle, okay? Without necessarily taking bets about which stocks are gonna outperform relative to which other ones. So for example, if the biggest stock in the world is, I don't know, Apple, for example, then you would have a very large share of Apple in the portfolio. And then you'd have smaller and smaller shares of all of the other things, depending in order of their size. So you'd weight all of the stocks in proportion to their size. And then the index fund would simply just stick to those weights as companies went up and down and would automatically just rebalance the portfolio in that way.

25:35Tarun Ramadorai:A mutual fund is, or a hedge fund, which is an even more sort of extreme version in some sense, is just about taking views on what's going to go up and what's going to go down and doing some kind of selection in the portfolio. And so what we would advocate is that people would not necessarily go for someone who tells you that they've got the secret special sauce, but maybe just buy something that's a broad-based diversified index of everything.

26:01Guy Kawasaki:As a slice of life in your life. When you go out to dinner with your friends, like when I go out to dinner with a doctor, I ask them every piece of medical advice I can. I got this ache in my shoulder. I have headaches in the morning. So when you go out to dinner with people, are they constantly asking you like, okay, what do you think? Should I buy Apple? Should I buy Amazon? Should I buy Bitcoin? Is your life a living hell like that?

26:28Tarun Ramadorai:It's almost the opposite. I remember when I was a young finance professor, people would come to me and say, oh, you're a finance professor. Let me tell you about my favorite theory of the way that the stock market works. So it's almost the reverse, which is, and in some sense, I think this sort of also exposes something of an interesting point, which is, and we refer to this in our book, which is that often people have a great deal of financial confidence, confidence in some cases misplaced financial confidence and and in other cases people are too timid so it's almost as though we're very poorly calibrated about our financial knowledge we're either way overconfident about our ability to really understand the financial system or we are just so frightened of the whole thing that we do what we call going out of the frying pan into the fire.

27:19Tarun Ramadorai:Some people just shun formal finance altogether. They are absolutely uninterested in, they think, as you pointed out, stocks are a crapshoot. We should not get into this. We should stick our money under the mattress, or we should just do family and friends type of stuff, or we should get into crypto because that's just so different from everything else that, you know, and it's not beset by the corruption of the formal financial system. And in some sense, the argument that we make in our book is that these alternatives are all worse than actually participating in the financial system. And that's why we need this to really work well.

27:56Tarun Ramadorai:And society needs formal finance to allocate capital efficiently. That capital that we provide are the things that are directed to corporations to do all the great things that they do in terms of innovation and the economy.

28:09Guy Kawasaki:I can tell you that you better hope we never go out to dinner because if I go out to dinner with you, I know what I don't know. And I am going to pump every piece of information I can out of you.

28:27Guy Kawasaki:Well, that's what makes a good podcaster, right? I'm trying to get everything I can out of you in one hour. Absolutely.

28:33Tarun Ramadorai:Absolutely. Absolutely.

28:36Guy Kawasaki:So I want to know, do you have a hall of fame about these countries do finance education very well, or these companies are outstanding companies that represent the best interests of their customers? Do you have a hall of fame? And then I'm going to ask you for the hall of shame.

28:53Tarun Ramadorai:So I think one of the things that my co-author on this book and I have tried very hard to think about in our academic lives is a notion of international comparative personal finance. OK, so a different way of saying this is it turns out that rather than thinking that some countries are great and other countries are not so great, what we'd like to be able to do is to identify best practices in particular markets around the world. Put differently, maybe there's a place that's outstanding at having a great pension system. Maybe there's a mortgage market that is particularly good in some part of the world.

29:28Tarun Ramadorai:So if we were to be able to identify and pick those systems that exist in different places, of course, you can't just wholesale import ideas from one country to another. You have to respect national differences. But maybe there's a way to find these gems that you can kind of put together. So to give you a few examples, the Danish mortgage market works extremely well. So I'll give you a couple of examples. First is, one of the things about the United States and the UK and other markets like that is refinancing your mortgage can actually be quite complicated. So when interest rates fall, then you should be getting into a mortgage product that is paying a lower interest rate, because of course, it's going to help you manage your circumstances a lot better.

30:14Tarun Ramadorai:Now, imagine that you're a person who's fallen on hard times. Your credit conditions have deteriorated, and maybe your credit isn't as good as it used to be. Even if interest rates fall, and this gives you an opportunity to improve your financial situation, to dig yourself out of the hole that you found yourself in, in the US and in the UK, they won't let you remortgage because you have to go through a credit check. Now, this is a little bit of a weird system because these are the people you really want to help by relaxing their financial budget constraint by giving them a cheaper mortgage. But they're precisely the people who can get it under that system.

30:52Tarun Ramadorai:In Denmark, that's not a problem. Even if you are a delinquent borrower or if you've had a deterioration in your credit circumstances, they always allow you to refinance. So that's kind of one feature of that mortgage system that's very good. Another feature of that system that's great is that sometimes when interest rates go up, relative to down, your mortgage is actually worth less in a world in which interest rates out there have gone up because new mortgages are paying more than your old mortgage. Usually you can't do much about that. But here you can remortgage at the new market value in Denmark of the lower market value of your, because your mortgage is now worth less and you can just refinance at that point and take the cash out.

31:32Tarun Ramadorai:And that could be a far better situation for you. And of course, it also allows you to do the usual thing of just refinancing when its trades go down as well. So there's no asymmetry between those two cases. Another great feature. Other mortgage systems have this wonderful feature called, which right now in the US is a big deal. In the US right now, a lot of people took out mortgages when interest rates were really low, and now interest rates are 6 % or 7%. So actually, many people are not moving because they would have to give up their wonderful mortgage deal. And so they're locked into their houses.

32:05Tarun Ramadorai:So what's a great feature that exists in other systems? One is called portability. You can just take that great deal with you to the new house. You just get the lender to reassess the new house for collateral. And now you've just ported your mortgage with you. Now, this is great because you have the benefits of getting that new job opportunity in a different city or in a different house or wherever it is. But at the same time, you can take your deal with you. You don't have to give it up. So there are many such features of the mortgage market that are great. So that's one example, Denmark. Pensions.

32:35Tarun Ramadorai:Australia has a terrific pension system. I could sit here and really talk your year off about that. But there are lots of situations in which there are places around the world that have done well in the way that they've designed particular systems.

32:48Guy Kawasaki:Can I read between the lines and conclude that the US is in the hall of shame?

32:55Tarun Ramadorai:I wouldn't say that. One of the things that's... I wouldn't say that. Look, I mean, there's plenty of excellent financial innovation in the United States. And I think there are, situations in which the US could improve. I'll give you another example that I think is probably useful. Actually, oddly, emerging economies have terrific payment systems. I don't know if you've been to India or China recently. Actually, paying is super easy. It's just QR codes everywhere, everything just seamless, transfers are happening very quickly. But in the US, for example, you're still stuck with a sort of legacy system that isn't working that well, and payments are just the pain and it just takes a while to get things going.

33:34Tarun Ramadorai:And so in that sense, having little encumbrance of history can actually be very helpful in just building great new technology that really helps people a lot. Another example that I think the US can absolutely improve is the retirement savings system. There are so many different types of accounts. There's Roth IRAs, there's regular IRAs, there's 401k plans, there's Trump accounts, there's a hundred different things that are out there. And what you really need is one account that gets opened at the point at which you join a company. And that account moves with you from place to place when you switch jobs.

34:08Tarun Ramadorai:And you don't have to worry about all the hassle and opening up 25 different accounts and keeping track of them and worrying about all that stuff. So yeah, lots of ways in which I think we can improve those systems.

34:18Guy Kawasaki:Okay, so going back to my theme of having dinner with you. And I'm telling you right now that my listeners are thinking like, yeah, this guy makes a lot of sense. So I would like to get your sort of quick and dirty gist advice and analysis of the most common big decisions we need to make. Just give us like, in a nutshell, this is what you should do. So let's start with cash on hand. How much cash should I have on hand? What's the best practice there?

34:52Tarun Ramadorai:So, I mean, a good best practice is you should have enough in emergency savings to cover at least three months of routine expenditures. That seems like a fairly simple ballpark that I think we should think about. But if you actually think about doing a calculation where you try to figure out what percentage of people actually have this kind of thing, in the U.S., something like close to 50 % of households do not have three months emergency savings. In the United Kingdom, that number is more like 56 or 57 % don't have three months worth. And then if you move to more developing emerging economies, in South Africa, for example, 90 % of people don't have enough to finance three months of consumption.

35:35Tarun Ramadorai:Wow. I know. When you think about it, this is pretty terrifying because we were just talking about this huge transition that we've made from being in absolute poverty to moving into the middle classes. And so one of the big things that you worry about is it's so precarious, right? Job shock comes along, a health shock comes along, something happens that's adverse. Life comes at you pretty fast, as we all know, but to not be able to have that cushion that ties you over, I mean, that's the kind of thing that can be really damaging.

36:07Guy Kawasaki:Okay. Second topic, higher education, is college worth it? Is college not worth it? Do I have to go to a great school? Can I go to a community college? Should I take out loans? What should I do about higher education?

36:20Tarun Ramadorai:We talk about this in the book. And what we say is there are two things you should pay attention to. The first thing you should pay attention to is how much am I going to benefit by going to university? And I think for most people, and if you look at that, the data is very clear, which is that going to college is a great investment, but, and there's always a but, you have to pick the course very carefully. You've got to make sure that yes, absolutely, you want to get an education because there are many great reasons to get an education. It makes us better people. It enriches our lives, builds a community of friends, and so on and so forth.

36:54Tarun Ramadorai:But there's also a dollars and cents, nuts and bolts kind of thing that you have to think about, which is what is the right course? How much money am I going to make if I take on this particular degree? And that needs to be paid attention to. So that's on the benefits side. But on the cost side, the thing you should really be paying attention to, is this a high fee paying institution or a low fee paying institution? And that can really affect the return because the cost is going to make a big difference to the return. And the second big thing is how do I finance this education? Do I understand the kind of student debt I'm taking on?

37:28Tarun Ramadorai:Is it expensive or is it low cost student debt? What's the repayment plan look like on that debt? Who's the servicer and are they a good servicer for my educational loan? And these are all of the things that we think you should think about very carefully.

37:43Guy Kawasaki:Okay, next topic, buying a house. Does it make sense to buy a house anymore?

37:50Tarun Ramadorai:Again, this is really a question of if you buy a house, and for many people, I think it makes a lot of sense for them because personally, they derive a huge amount of utility from living in their own place. And we're not here to tell you that's not a great thing to do. you should absolutely go ahead and do whatever you like. But again, pay attention to what is the mortgage you're taking on? Is it a fixed rate mortgage or an adjustable rate mortgage? If I take on that mortgage, have I shopped as much as I possibly can for that mortgage? Because this is one of the biggest financial decisions I'm ever going to take in my life.

38:24Tarun Ramadorai:Apart from thinking about, am I overpaying for this house or underpaying for this house? You should be doing the calculation about what have houses in the neighborhood sold for, what has been the rate of return on the housing in these places. You should be thinking about these kinds of things, but the main thing you should be thinking about is what is the cost of financing? Am I shopping correctly for the mortgage? Am I getting the right payment? And then once I have it, am I refinancing it exactly when it's appropriate to do that? And that's something to really pay attention

38:49Guy Kawasaki:to. Okay. My next topic is, and we've touched on this a little bit, is investing.

38:56Tarun Ramadorai:Now, there are two components to that. One is just taking on risk. And as we've discussed, anybody who has the capability to do so should take on some risk, as long as it's well compensated risk. This is very important. So having a positive average rate of return over a long period of time is a good signal that this is the type of risk worth taking. But the more important component almost for most people is retirement savings, which is a good rule of thumb is that we should have about six times the income at retirement, squirreled away in the form of retirement savings. And yet, most people seem very reluctant or are saving too little on average.

39:37Tarun Ramadorai:Many people are confused about their retirement prospects and what they believe they're going to make during retirement or how they're going to finance their retirement. People seem very scared of annuities, even though they're very good products. Annuitization is something that we absolutely recommend. And then if you have a big house and you don't have the ability to finance it, then you should be thinking about taking on a reverse mortgage or releasing some of that home equity that you've built up over a period of time. Up next on Remarkable People. But again, there's a cross subsidy. If you don't know what you're doing in the market, the iron law of active management, which the Nobel Prize winning economist William Sharp called the iron law of active management, is that for some people to be winners in stock markets, other people have to be losers in stock markets.

40:21Tarun Ramadorai:So there's a direct transfer. Your losses are somebody else's gains.

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41:50Guy Kawasaki:Become a little more remarkable with each episode of Remarkable People. It's found on Apple Podcasts or wherever you listen to your favorite shows. Welcome back to Remarkable People with Guy Kawasaki. Just a point of clarification, six times what? Oh, six times income. So if you make 100 grand a year, you only need 600 grand to retire.

42:15Tarun Ramadorai:That is a rule of thumb that most people believe is a reasonable rule of thumb. And there's lots of good calculations to support it. Now, of course, I don't say that you should have only six times. You should have at least six times. I think that's what's very important. But if you're looking for a number, you should have at least six times. There's lots of good calculations that suggest that, but probably more.

42:39Guy Kawasaki:Okay. I cannot resist. I specifically want to hear what you think of Bitcoin and crypto. Okay.

42:47Tarun Ramadorai:Again, I think that question comes in two parts. One is, what do I think about the underlying technology and does that hold promise for lots of things? And I think the answer is yes. I think we can think that blockchain technology is going to be really helpful for many things. There's many contracting solutions. There's ways in which you can think about a distributed ledger as really helping out, for example, for housing titles or collateralization. There's many reasons why that technology could make a huge amount of sense and really deliver great benefits. But my feelings about blockchain technology are very different from my feelings about cryptocurrencies.

43:23Tarun Ramadorai:I think we need to be a little bit careful to not confuse those two things with each other. Okay. So let me give you a couple of examples for why. The thing is that it almost depends on the period that you're looking at. So today I look like someone who is quite sensible for not suggesting that people get into Bitcoin. We just had a big Bitcoin crash. But on the other hand, the thing could go up again, and then it could go down again, and then it could go up again. And there's a huge amount of volatility, but it's just not clear what the intrinsic value of that object is. And so in some sense, what is happening is this is one of those examples where we believe that the corruption of the financial system kind of comes into play, which is to say, when people are trying to sell you these products aggressively and marketing very aggressively, then you have to understand whose incentives these are in the best interest of.

44:14Tarun Ramadorai:Is it in your best interest or is it in the best interest of the person who's actually trying to sell you the product? Are these things financing transactions that you probably shouldn't want to be a part of that are on the dark web? Probably the answer is yes. Have there been lots and lots of stories of people getting ripped off with tokens that are completely worthless at some point? Yes. Do you have the ability to distinguish between a great token and a not so great token? Probably not. So I would just, if you put all that together, it doesn't really add up to a great case for crypto.

44:44Guy Kawasaki:To me, the investment thesis of Bitcoin is there's people who are more stupid than you that's going to pay more. That's a very poor investment thesis in my mind.

44:57Tarun Ramadorai:Yeah, no, I agree. And in some sense, I think part of what we say in the book is that it's also a little bit troubling to be part of a system that your money is coming from an extractive form of capitalism where your gain is somebody else's loss. Your good deal is somebody else's bad deal. And there's lots of cases of that strewn around the financial system that we discuss in our book. And so in some sense, that's the unfairness that we'd like to try to eliminate from the system if we can.

45:28Guy Kawasaki:All right. Another specific case is this, like from the outside looking in, a quick sort of overview of Robinhood is, oh, this is such a great deal. I can't afford to buy one entire share of Tesla so I can buy a little piece of Tesla and participate in Tesla's upside. And there's no commission. Robinhood is God's gift to a young investor. What's wrong with that theory?

45:56Tarun Ramadorai:As we just discussed, one of the reasons that you should be taking on stocks is because they provide you access to the productive resources of the economy. They are basically a good bet because you're taking a bet on the productive innovation of companies in the long run. And that's been a pretty good force for wealth creation. But the way in which you can really destroy the benefits of participating in the stock market is by doing a lot of things that we would not recommend as finance professors. One, trading a lot. Trading a lot is really a great way to just keep on squandering money because often the bets that you take are not really extremely well compensated.

46:35Tarun Ramadorai:You don't have a lot of information. There's so much noise that's driving stock prices around that you could actually lose more money than you gain. In some cases, there are commissions as well. Of course, the Robinhood case, maybe not so much. but the money that you're kind of squandering by just having these trades go through is really coming from the over trading that you're doing in that particular case and that's not so great of course in early on i don't know if you remember this but robin hood gamified stock trading every time you bought a stock there would be a shower of confetti that came

47:09Tarun Ramadorai:and what is this doing it's giving you this little jolt of happiness

47:17Tarun Ramadorai:look on the one hand look it's amusing and it could be great and it could be fun for people and i have no problem with people having fun i'm really not one of those people who's trying to stop people from having fun you should just understand the cost of that fun right that's

47:29Guy Kawasaki:important what what if somebody pushes back on you and says what's the cost of over trading at

47:34Tarun Ramadorai:zero commission the cost of over trading is that you buy stocks that go down and you sell stocks to go up, right?

47:40Guy Kawasaki:It's not that Robin Hood profits from your over trading.

47:44Tarun Ramadorai:No, but then what's happening is that, again, there's a cross subsidy. If you don't know what you're doing in the market, the iron law of active management, which the Nobel Prize winning economist William Sharp called the iron law of active management, is that for some people to be winners in stock markets, other people have to be losers in stock markets. So there's a direct transfer. Your losses are somebody else's gains. Okay.

48:06Guy Kawasaki:So I'm going to let you off the hook because I don't want to be that bad a dinner guest and I definitely will pick up the tab. But now one of the most interesting things I found out of your book is we've had behavioral economists, we've had social psychologists on this podcast. I found your discussion of the shortcomings of nudges so interesting. I always tell people, yeah, a nudge is a good thing. Like when you get your California driver's license, it defaults to, I don't know if this is true, but I think it should default to if I get in an accident, take my body parts. I have to opt out of that, not opt into that.

48:50Guy Kawasaki:So that's a nudge, right? So you're bursting my bubble here, Taron. What's wrong with nudges? and why should it be shoves?

48:58Tarun Ramadorai:We like nudges in many cases. It's been a great success. There's been a lot of interesting things that have come out of that, as you point out. But I think as we've had a longer period of time to evaluate the full effect of nudges, we've realized that they are not the magic bullet that they might have seemed to be. And there are some hidden costs, some pretty important hidden costs. So I'll give you just two reasons why we should not be completely cavalier about relying on nudges. The first one is some very good, very big studies that have been done evaluating lots of nudges in the field show that they're actually substantially less effective than we thought they were.

49:38Tarun Ramadorai:Many of them just don't work, okay? They seem like they're a good idea. They're supposed to be this libertarian paternalism. Paternalism because the default is the right option for you, or at least determined by someone to be that way. Libertarian because you can just decide not to take it on anytime you want. But in some sense, there's a little bit of judo going on because of the fact that your inertia is being used against you in a benevolent way, apparently. Now, the first thing is, as I'm pointing out, some of these nudges just haven't been shown to work very well. And why is that? It's because if you actually look at the published research, there's a strong publication bias towards publishing the effects of very successful nudges.

50:19Tarun Ramadorai:But when you actually look at the effect of them when they've been rolled out into the field, they are substantially less effective than in the publications that you've actually seen. So they can be weak medicine is kind of the first issue that we have. The second issue is that there are unintended consequences. Sometimes this libertarian paternalism works in a way that's almost too good to be true. So let me give you an example. So one of the things that people sometimes do is that they'll enroll you in a retirement savings plan and auto-deduct a certain contribution rate automatically. And that's been touted as a very good effective nudges.

50:54Tarun Ramadorai:Now, the problem with that is first of all, what is the right contribution rate? Is it 3 %? If you set it too low, then you get under saving. If you set it too high, then sometimes you get people that get into trouble because they haven't seen the fact that the money is just leaving their income every month. And so now there's lots of studies coming out that show that people are getting into debt because they don't understand the fact that there's 6 % being auto-deducted from their income. And so what does that mean? They're paying expensive debt, so net, this is a loss for them because they've just not paid attention with one eye to the thing that's going on the other side.

51:30Tarun Ramadorai:Okay, so that's just some examples of notches. Now, what is a shove? So I think we think of a shove, okay, is that there is something specific that we want to get to and we'll do what it takes to get there, okay? And what is this? it's that we first of all want to make sure that maybe there are certain corners of the market where there's abuse occurring, okay, where people are being sold unsuitable products. There are situations where people are getting into debt traps or trouble. And there we are happy to advocate forceful shoves where the government comes in or the regulator comes in and says, listen, this just cannot be allowed to happen.

52:09Tarun Ramadorai:And we just stopped this. So there's some intervention is certainly part of it. Can you point out some historical shoves? Sure. For example, okay, which is we should be in some cases willing to go out there and name and shame providers. Okay. So people have done this. So imagine that there's an investigation that comes out that says, I'll give you a simple example. In the United Kingdom, there was a very important product called payment protection insurance. Payment protection insurance was bundled with every credit contract that was sold in the United Kingdom for a while. Now payment protection insurance was something that people didn't really know about.

52:48Tarun Ramadorai:There was just a big form. They would check a couple of boxes and off you go. And quite a large chunk was actually deducted, which was supposed to be when you lost your job or something along those lines, this insurance was supposed to kick in. In some cases, people were sold that insurance for years, which they paid, and they were never eligible to claim on that insurance policy in the first place. So this is a classic example where the financial conduct authority, the regulator came in, they clamped down on this abuse, and then they forced the industry to pay billions of dollars in compensation to a bunch of people who were dealing.

53:22Tarun Ramadorai:So that is an example of a show, a forceful show.

53:25Guy Kawasaki:I have one last question for you. I'm going to let you off the hook. Tell me I have asked you more questions than any podcaster has ever asked.

53:35Tarun Ramadorai:I will absolutely agree with that. And I will say you've asked some very, very good questions as well. So thank you for doing that. This has been great.

53:44Guy Kawasaki:We're not the BBC here, you know.

53:49Guy Kawasaki:All right. So now I want you to explain the concept, which I loved, of the financial starter kit. What is in a financial starter kit?

54:00Tarun Ramadorai:The reason we came up with the name financial starter kit is we think that anytime you start a new sport, for example, you need to have some equipment, whether that's bats, pads, cleats, helmets, protective equipment, and so on. And finance is something that you have to engage with for so many different reasons. And we feel like people are kind of going into battle unarmed. Okay. And so we really feel like there should be a suite of products that are guided by four simple principles. The first is the product should be simple, they should be cheap, they should be easy to manage, and they should be safe for people.

54:35Tarun Ramadorai:And essentially, we think that they should be standardized, easy to manage product designs with very transparent price structures that allow people to easily comparison shop for these products. The financial sector is allowed to offer you anything, but they should always offer you one of these very simple starter kit products. So it gives you a basis for comparison and allows you to compare across multiple providers as well. And some products are so important, like retirement savings, that it should be mandatory to choose one of these simple starter kit products.

55:08Guy Kawasaki:How are you going to get something like this implemented? So I think one of the things that we're realizing is that different countries are going through different political cycles.

55:17Tarun Ramadorai:In some places, it may be more feasible to put these ideas on the table than in other places. And by the way, in some cases, governments are already doing this. To give you an example, a very simple transactions account in Germany called the Basiskonto exists, which has a very similar form to the kind of product that we would advocate. In India, for example, there have been bank accounts that have been opened and during the PMJDY scheme, again, having the kind of flavor that we talk about. So it isn't as though this type of thing doesn't exist in different places. It does. we just like very much to expand the set of products that enter this.

55:54Guy Kawasaki:How about a country where the first lady of the country has her own meme coin? Would you say that is a part of the starter kit?

56:02Tarun Ramadorai:You know my views on crypto. I've already told you about my views on crypto. But it's certainly the case that, look, I mean, I think the things that we are sort of realizing is that sometimes change can come from unexpected places, right? which is to say it depends on the political imperatives that people have. And so I think as an economist who really wants to see some of these things get done, I'm happy to work with anybody who is happy to kind of work on these things, as long as we get the right outcomes for a well-functioning personal finance system.

56:35Guy Kawasaki:So I thank you for all the information. Thank you so much. Your book was fascinating. There are many points where I said, what? It's completely contrary to what I thought. So that was very useful. And I thank you for being on our show. I thank you for withstanding all the pumping I'm trying to do of you. I'm trying to get every possible thing I can out of you.

56:59Tarun Ramadorai:It has been wonderful. And thank you so much for taking the time and for reading the book so carefully. That has been wonderful to see that.

57:06Guy Kawasaki:And I really do appreciate the time and effort. I think your book is a real service to people. And I hope more politicians read it. So let me just thank my staff. I want to thank Madison Nisemer, of course, the co-producer. I don't know where I would be without her. Jeff C., also co-producer. I don't know where I would be without him. Shannon Hernandez, sound design engineer. Tessa Nisemer, our researcher. So there's a good group of people behind me. And we are on this mission to make people remarkable. And personal finance is now part of our starter kit. So thank you very much. Thank you so much.

57:44Guy Kawasaki:That's wonderful.

57:48Guy Kawasaki:This is Remarkable People.