How your financial literacy impacts on your financial confidence
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Virtually all of us engage with the financial-services industry in one form or another, often on a day-to-day basis.
Being able to do that effectively should therefore be simple because it’s so essential to all our lives.
Yet financial products and services are often made unnecessarily complex by the language the industry uses to communicate with its customers.
The information given by some financial providers is frequently littered with jargon, technicality, acronyms, risk warnings and clauses, making important documents hard to understand.
Language barrier
Jargon can turn people off. There can be an assumption that technical language conveys expertise, knowledge, and professionalism, where in reality, it just confuses people.
Simple messages tend to get lost in the risk warnings that companies are required to include to comply with regulatory requirements.
Financial Services are bound by compliance regulations, however, it can make clear language and communications difficult. A good example is the letters you receive to confirm the investments you’re making, which often jump into technical detail and don’t really help people know what to do.
Seven in ten UK adults feel overwhelmed by jargon about money and savings, according to a Post Office survey.1 Around half said they didn’t understand personal loans, APR (annual percentage rate), interest rates, tax codes, dividends, rebates, or the stock market, while 20% were put off applying for a personal loan due to confusing terminology.
What is the impact of a lack of financial literacy?
The effects of jargon and poor communications can be more wide-ranging than it might appear.
If the information provided to customers isn’t easy to understand, it will likely make it harder for them to engage with their finances. That can, in turn, impact the outcomes they get, with further knock-on effects for their confidence and wider wellbeing.
Almost nine in ten UK adults say they don’t feel confident in their financial literacy and a third say their mental health has suffered as a result.2
It makes the industry seem inaccessible, too complicated, and irrelevant, when actually things such as planning for later life and having the right insurance can be fundamental to our wellbeing.
What is being done to make information more accessible?
Many firms are working on improving their communications, while the Financial Conduct Authority’s new Consumer Duty - which places an emphasis on enabling customers to make informed decisions - should accelerate that process.
Knowing your audience and understanding different clients needs and wants is a key focus for financial advisers. Some clients want the full detail, but others don’t want to know everything and just want the basics. You can drive better understanding and literacy if you give people something to do, with tools that help engagement such as online calculators and sliders.
Financial advisers understand that it’s about delivering advice to clients in clear, jargon-free language that they understand, aiming to keep things simple. To receive a complimentary guide covering wealth management, retirement planning or Inheritance Tax planning, contact Mary MacFarlane Financial Planning on 01463 793542 or email mary.macfarlane@sjpp.co.uk
[1] Financial Jargon Explained, Post Office, survey of 2,000 nationally representative UK adults, March 2022
[2] The Great British Financial Literacy Test, Freetrade, survey of 2,000 nationally representative UK adults, April 2021
