INVESTMENTS

Afool and his money, as we all know, are soon parted. But is it the case that the British are more credulous and more naive about money than other nations? There are, alas, plenty of grounds for believing we may be. (Before they write in, I accept Scottish readers may rightly object to being tarred with the Sassenach brush in this respect).

On the face of it, such a statement seems odd. After all, have not the 1980s been an exceptionally good decade for those with the talent and drive to create wealth? According to a survey published last week, the number of those with serious money has risen sharply. The market research firm Datamonitor reckons there are now 49,000 millionaires in the country, nearly three times the number less than a decade ago. More than 20,000 Britons now earn over pounds 200,000 a year.

But historians looking back on the late 1980s and early 1990s will surely also notice the large numbers of those who lost money. These, after all, have been the years of negative equity, of the personal pensions fiasco, of the endless disasters at Lloyd's of London and several notorious financial scandals, such as Barlow Clowes and BCCI.

Making money may never have been easier, but nor, so it seems, has losing it. It is scant comfort that several of the sufferers, like those who ran Barings, or the banks and insurance companies who frittered away millions buying absurdly overpriced estate agents at the top of the housing market, clearly should have known better.

For the rest, including thousands of ordinary, outwardly sensible middle class folk who have never knowingly taken a huge amount of risk, a mixture of innocence, gullibility and ignorance has taken a heavy toll in the last few years. These are the people who gave their money to Barlow Clowes and to Lloyd's.

They are the elderly couples who were sweet-talked into mortgaging their homes to buy home income plans that could never have met their stated investment objectives. And they are the thousands of people who plunged savings into illiquid endowment policies they clearly did not understand and who bought personal pensions at a cost in commissions and charges that would have horrified them had they fully understood them.

Some of these cases are described in a new book, Fool's Gold, which graphically underlines how painful the consequences of such financial folly can be. The author, Jonathan Mantle, who chronicle the disasters at Lloyd's in his last book, paints a convincing picture of how easily normally sensible people can slip into folly when it comes to making financial decisions.

What is striking, reading these painful case histories, is not just the terrifying ignorance amongst even well-educated people about the most basic financial concepts, but how in so many cases this ignorance is fatally compounded by a very English fault: misplaced trust and exaggerated respect for badges of authority and respectability.

"Of course I had no fears about it," says one of the ludicrously undercapitalised names lured into Lloyd's in the late 1980s, "because we were talking about Lloyd's of London. It had a wonderful reputation". Almost as bizarre are those investors who believed that because Barlow Clowes said it was investing in gilts, their investment was somehow underwritten by the Government.

The interesting question, of course, is what can be done to minimise this kind of folly in future. Inevitably, some will say the answer lies in yet more regulation. Nobody can doubt that the system of financial services regulation in this country is an uneasy mixture of self-regulation and inconsistent and frequently ineffective statutory powers.

But, as in most other spheres of activity, calling for more regulation is the easy way out that solves little. All too often, regulation is expensive and ineffective at achieving its stated objectives - often because the regulators are in the pocket of those they are trying to regulate. It is a pity, for example, that it has taken years for the Government to summon up the courage to insist on disclosure of charges and commissions in the life insurance industry.

In the end, there is only one enduring way to eliminate financial folly, and that is through creating a nation that is better educated in financial matters. Compulsory disclosure of relevant information by anyone selling financial "products" must be the starting point, but that alone can never be enough.

The education system in this country is also sorely deficient. Most people learn their lessons about the realities of economic life and investment not in the classroom, but through bitter experience. Lucky the person who has a financially astute parent. There must be a place in the schools curriculum, and in higher education, for the teaching of basic financial and business concepts.

There is nothing new about greed, innocence or misplaced trust. Nor is there anything startlingly new about the notion that reward is linked to risk, that the business cycle will never be abolished, and that sound independent financial advice has to be paid for (something the English are notoriously reluctant to do). Yet as long as these basic lessons have to relearnt, the financial follies of the 1980s will come round again. That at least you can safely bet your life savings on.

Fool's Gold, by Jonathan Mantle: Sinclair-Stevenson. pounds I7.99