More than half of those surveyed (54%) said they do not read financial literature because "it's too hard to understand." When asked to compare various communications, 82% said their car insurance policy is easier to understand than a mutual fund prospectus, and 79% find prescription drug inserts easier 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 Hisey. "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." Less than one-third of those surveyed said they understood the terms "basis point," "expense ratio," or "index fund" well enough to explain them to a friend or co-worker. Not surprisingly, half of those surveyed described themselves as "not so" or "not at all" knowledgeable about investing, and more Americans feel confident in their ability to select the right surgeon for a major surgery than feel confident about choosing the right investments.
Financial Jargon: Costly for Many Americans
The use of complex financial terms and jargon is not only causing a sense of confusion among Americans, it is also costing them money. Over half-52%-of those surveyed said they've made an investment mistake because they were confused by or didn't understand an investment. Specific mistakes cited by respondents include failing to or waiting too long to invest because of confusing information (cited by 30%) and making an investment they regretted because they didn't understand it (28%). "Financial jargon can have painful and enduring consequences," Hisey said. "Americans face enough roadblocks on the road to a financially secure retirement. Poor communication should not be one of them." The survey found that one out of six Americans have failed to sign up for a retirement plan at their job because they didn't understand how it worked, and better than four in ten (44%) said they don't understand how an IRA account works. Less than one in five (19%) survey respondents said they are very confident they will have enough money to live comfortably in retirement, due in part to this confusion.
Financial-Speak Doesn't Make the Grade with Consumers
Not surprisingly, Americans believe the financial services industry has done a poor job of communicating. Asked to grade the financial services industry on how well it explains saving and investing to consumers, two-thirds of survey respondents gave the financial services industry a "C", "D" or "F". Better than two out of five (41%) said information from financial services companies is "not so" or "not at all" helpful. The financial services industry does not compare favorably to other industries in its use of technical language and jargon. Almost three-quarters of those surveyed (73%) feel financial professionals use more jargon than their car mechanic and more than half (52%) feel financial professionals use more jargon than doctors.