By Cathie Gandel
April 24, 2008
AARP Bulletin Today
I’m not a car buff, but I understand my auto mechanic better than my financial adviser, and he’s the one who’s supposed to be helping me plan the rest of my life. When we meet, I’m transported to a world of gobbledygook, populated with basis points, expense ratios and index funds. And even though this is my future we’re talking about, my mind wanders. I’m confused, intimidated and ready to sign on any dotted line.
There’s some self-assurance to be gained, I suppose, in learning that I’m not alone. According to a survey released today by AARP Financial Inc., a subsidiary of AARP, Americans are basically befuddled when it comes to talking about their money.
Nearly three-fourths of the 1,203 adults polled said their auto mechanic uses clearer English than their financial professionals, and more than half said they do not read financial literature because it’s confusing, too hard to understand—and it’s written in jargon, defined as “a confused, unintelligible, strange, barbarous or outlandish language…obscure and often pretentious.” No wonder I don’t get it.
The study confirms what I’ve always suspected: that my financial adviser and I don’t speak the same language. And, as if reading my (wandering) mind, the research appears on the website with a robotic translator, the Jargonator, who bobbles and beeps while serving up the plain-English definition for some 25 common investment terms, like “bear market” or “dollar cost averaging.” A word game lets you test your knowledge of financial terms as part of a hypothetical conversation between a financial adviser and an investor.
Meet the Jargonator (Click on Image to Enlarge.)
The Jargonator takes commonly misunderstood financial terms and defines them in plain language. To get started Click Here.
Many of us hope our financial plans will somehow work out, that our accounts will grow through hope and prayer. But ignoring financial issues because they’re confusing can be costly.
“Many people don’t take advantage of retirement plans at work because they don’t really understand what’s involved in a 401(k), for example,” says Richard Hisey, AARP Financial chief investment officer. More than half of the respondents said they had made a mistake — such as making an early withdrawal which led to paying a penalty – because they had misunderstood an investment. “What’s really happening,” says Hisey, “is a failure to communicate.”
The survey was conducted by telephone early in 2008. Some of the key findings:
* Almost three-fourths of those polled said they wish they had a better understanding of financial terms
* More than 80 percent found their car insurance policy easier to understand than a mutual fund prospectus
* Only 19 percent felt very confident in choosing the right investments, half the number who felt confident in their ability to select the right surgeon for a major operation
* Sixty-seven percent gave the financial services industry a “C” or lower in explaining savings and investing to consumers
* Respondents overwhelmingly felt that poor communication was intentional, whether to distract attention from fees, to focus on sales, to make the product seem more impressive or to intimidate the consumer.
The Jargonator isn’t the only one out there to make learning this language fun. The Financial Industry Regulatory Authority (FINRA), the largest nongovernment regulator for security firms doing business in the United States, launched a national advertising campaign in November to address the anxiety that investors—new and experienced—have about investing. One ad, which directs viewers to the FINRA site [click on the image under "Investor Resources.] offers up an ultra-cute white dog rolling on a green carpet as a voice says, “Learn what roll over means to your retirement.”
“We took some words that have double meanings, like ‘no load’ and ‘small cap’ and treated them in a light-hearted way, to get people to acknowledge their confusion, and realize they might need more information,” says Howard Schloss, executive vice president of FINRA.
In another move toward demystifying financial terms, the Securities and Exchange Commission is reviewing public comments on its proposal that mutual funds could provide investors with a short “summary prospectus.” Such a summary would describe a fund’s goals, strategies, risks, costs, management fees and tax consequences in plain English. It would take the place of the dense document currently required (that is typically ignored, according to the AARP Financial survey). Investors who want more information could request a traditional prospectus or go to the mutual fund’s website.
While the investment industry works on simplifying its message, Hisey suggests that investors need to educate themselves about financial terms, ask questions, get second opinions and understand the fees and risks of potential investments.
Until then, maybe I should ask my mechanic how he invests all those hefty repair payments.
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