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Official: Financial jargon puzzles Americans

Emily Crone

A new survey from AARP reveals that more than half of American adults have made investment mistakes due to confusion by financial jargon. Another recent survey showed teens lack financial literacy. It’s not surprising that young people still have a lot to learn, but it appears that adults aren’t much better off.

In the survey of more than 1,200 adults age 18 and up, more than half of the respondents said they made an investment with an unfavorable outcome because they were “confused” or “didn’t understand” basic investment concepts and financial jargon. Financial literature is not read by 54 percent of respondents because “it’s too hard to understand.”

“Many people are more likely to read the nutritional information on a cereal box than read a mutual fund prospectus before they buy,” said Richard “Mac” Hisey, chief investment officer at AARP Financial in a press release. “The recent efforts by the SEC to simplify the prospectus are a long stride in the right direction. Investors need quality, not quantity, of information.”

Some other highlights from the survey:
— 54 percent believe that a major reason jargon is used instead of simpler terms is to distract people from focusing on the fees they will be paying.
— 78 percent said they believe that materials from financial companies are more about selling than educating.
— 63 percent say that a major reason jargon is used is to make a product or service seem more impressive.
— 49 percent believe a major reason jargon is used is to make the consumer feel less confident that they can handle their own finances.
— 41 percent said information from financial services companies is “not so” or “not at all” helpful.

“What we have here is a failure to communicate,” said Hisey, “The relatively straightforward process of saving for the future has become incredibly complicated. The research shows that investing has become unnecessarily complex, confusing and, in some cases, intimidating.” Hisey said these results should be a call to action for the financial services industry.

Fortunately, the Federal Reserve and Congress are currently working on regulation for the credit card industry, which will help end predatory practices and make the fine print more understandable for the average American. If simple terms replace jargon, perhaps people will be able to make wiser financial decisions.

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  • Some very interesting statistics. Every single industry has it’s own jargon. I think it is important for each industry to ensure it keeps its communications with it’s users simple. However, it is equally important that as users of a service we recognise that the responsibility for understanding what is being offered is ours. If financial people speak in jargon insist that they keep it simple and don’t buy a service/product until you are confident that you understood what was sold/offered.