If financial jargon feels like a tiresome hurdle you struggle over every time you want to take out a new savings account, insurance product or loan, you’re far from alone.
Concerns over the use of complicated financial terms have recently been highlighted by Treasury-backed body NS&I, which warned that banks and building societies risk driving customers away by bombarding them with too many financial terms.
It found that nearly one in five (18 per cent) of people strongly agree that they find language used in product brochures confusing.
Looking at sources of confusion, 41 per cent of people said this was caused by call centre staff, 49 per cent highlighted terminology in application forms, 50 per cent were baffled by language used on company websites and 51 per cent found phrases used in letters were confusing.
Certain terms caused a particular scratching of heads – for example, one term which many people struggled with is AER, which stands for annual equivalent rate and is used to help people compare returns on savings accounts.
Meanwhile, almost half (45 per cent) of people didn’t know that gross interest refers to interest that is paid before the deduction of tax.
And despite a recent fanfare around Isas, a significant 47 per cent of the 1,200 adults aged 16 and over surveyed did not know that the term stands for individual savings account.
As financial education appears on the national curriculum in secondary schools in England from the start of the new term, catching up with the rest of the UK, many financial phrases should become more easily recognised by the next generation.
But it’s also vital for financial firms to do their bit by presenting their terms in a user-friendly way – particularly as this is very much in businesses’ own interests.
Three-fifths (60 per cent) of consumers said they are likely to stop saving with a particular bank or building society if they cannot understand the way they explain their terms and conditions and more than half (54 per cent) said confusing language would make them consider switching to another firm. One quarter (25 per cent) of people who found company websites confusing said this had stopped them from saving with a particular bank or building society.
Even worse, many people say that misunderstanding financial terms or not even reading them properly has resulted in them being hit in the wallet. Across the UK, consumers estimate they have lost out on £428 on average over the last year through not getting to grips with the small print around financial products, according to research from the Government-backed Money Advice Service (MAS).
This could be down to anything from incurring late payment charges on credit cards because the person didn’t fully understand the deal or withdrawing money from a savings account too early, resulting in a financial penalty.
Danny Cox, head of financial planning at financial services firm Hargreaves Lansdown, says: “Financial institutions have a history of overcomplicating money matters.
“Jargon is an obstacle to making good savings decisions and the easier you make it for people, the more they are likely to do the right things with their money.
“There are parts of the financial services industry working hard to help people to understand the importance of financial matters.
“Savings and investing rates need to improve, borrowing needs to fall, and this can only be done with the right information, guidance and use of simple language.”
There are moves towards more financial products which do “what they say on the tin” and make it easier for consumers to shop around for deals without unexpected catches.
A Treasury-commissioned review recommended a suite of simple and transparent financial products which have a clear pricing structure and carry clear language.
A life insurance product from Barclays has just become the first deal to be awarded a BSI (British Standards Institution) kitemark under this scheme and more simple products are in the pipeline.
The MAS has a jargon quiz for people to test whether or not their knowledge of financial terms is up to scratch at www.moneyadviceserv ice.org.uk/en/tools/do-you-know-your-ear-from-your-elbow .