A survey of 2,000 consumers, carried out by consultancy group Definition, found that financial institutions - and consumers themselves - may be greatly overestimating understanding of key financial terms.
As part of the research, consumers’ knowledge of a variety of financial terms was tested, with the researchers describing the results as a “wake up call to financial firms”.
For example, most respondents (83 per cent) said they could explain ‘inflation’ but when tested, only 57 per cent picked the correct definition from a list.
Likewise, 65 per cent said they understood the term ‘APR’ but only 50 per cent chose the correct definition.
Financial firms need to think about the stresses people are under in real life while they’re trying to understand some gobbledygook in 20 pages of Ts & Cs Amy Graham, Brand Vista
Commenting on the results, Neil Taylor, founder of language consultancy Schwa, said more work is needed from firms as they prepare for the Financial Conduct Authority’s consumer duty.
“Financial services firms suffer from what psychologists call ‘the curse of knowledge’. They’re financial experts, it’s hard for them to imagine how little the rest of us understand – even when we think we do,” Taylor said.
By the end of next month, manufacturers of financial products and services are expected to have completed all reviews necessary to meet the outcome rules of the consumer duty and shared necessary information with their distributors.
“The FCA is rightly pressing financial businesses to use language normal people actually get, and to get a move on,” Taylor said.
Sadly many people will either overestimate their financial awareness Samuel Mather-Holgate
The research from Definition has highlighted that a significant number of consumers think financial communications need to be clearer.
One in five respondents believe that communication from their banks is unclear, while a third of people who have bought something on credit ended up paying more than they originally thought they would.
“This is not surprising, but upsetting reading,” independent financial adviser, Samuel Mather-Holgate said.
“Given the consequences we know of from getting into debt, it is disappointing that we aren't supporting the most vulnerable in society by ensuring financial institutions are offering, not just clear but, readable information so everyone can understand it.
“The level of financial literacy in the UK is low, so to ensure we are protecting those most vulnerable the information provided about financial products must be easy to understand and in a language that everyone knows,” he added.
Disabilities
The research also highlighted that consumers with disabilities, as well as parents of children with disabilities, face an additional burden.
Almost a quarter, or 24 per cent, of those with disabilities think that communication from their bank is confusing and are twice (29 per cent) as likely to have made a mistake with their finances because they did not understand the wording.
In addition, more than half (55 per cent) of parents to children with disabilities have opted into a financial service that they did not need because they did not understand the wording.
