If the very notion of financial jargon leaves you mystified, don’t be too hard on yourself. As it turns out, more than a third of UK adults struggle when it comes to the sheer volume of financial terminology they encounter on a regular basis.
Conducted by the Post Office, a poll of 2,000 adults found that most people struggle with financial jargon. Only one in five said that they could confidently explain what unsecured loans are, while 50% were unsure as to what APR means.
Incredibly, the poll also found that one in three UK adults have no idea what their credit score is.
Even so, one in five of those polled admitted that their lack of confidence regarding financial jargon had discouraged them from applying for financial products. Fewer than 60% said that they had applied for personal loans in the past, and the average personal loan issued was £8,000.
The Importance of Clear and Concise Language
Commenting on the findings, director of financial services products at Post Office, Ed Dutton, said that the figures illustrate just how important it is for banks and lenders to cut out the complexities when dealing with customers.
“We believe it’s important to speak to customers using straightforward language so that they feel confident in their decisions when borrowing,” he said.
“Personal loans can be used for a variety of reasons such as buying a car or extending a home and offer people a different option to other products such as credit cards,”
“It’s always worth taking the time to read about any financial product you are considering and taking the time to seek help on jargon if anything is unclear.”
Interestingly, the Post Office poll found that while around a third of UK adults do not know what their credit score is, they do understand what a credit score means. Meanwhile, two-thirds of those polled admitted that they do not understand Bank of England base rates, or how they influence their own outgoings.
40% stated that while they have consulted with finance experts in the past, they felt confused or even intimidated due to the presence of complex terminology. Among which, 20% said they lacked the confidence to request clarification of such terms.
Worryingly, 22% said they even if they did not fully understand its terminology, they would still sign a finance agreement or contract.
The Most Confusing Terms for British Adults
Among the 2,000 adults polled, the following came out as the most commonly misunderstood terms of all:
- AMC (Asset management company)
- VaR (Value at risk)
- Unsecured loan ISA
- IFA (Independent financial advisors)
- AER (Annual equivalent rate)
- Asset management
- Consolidation loans
- FSA (Financial services authority)
“The financial world is full of jargon and phrases which can be confusing,” Mr Dutton added.
“The data suggests that many adults don’t feel comfortable in challenging what these phrases actually mean, with some willing to sign for something they don’t necessarily understand,”
“It is also surprising that many do not feel confident on what the Bank Rate is which can have a significant effect on the interest rates of loans and mortgages,”
“It is important people feel fully informed when making big financial decisions,”
“Doing your homework and using a loan checker to find out eligibility can help to understand whether a personal loan is the right product for your needs.”
The survey also found that the most common reasons for taking out loans in the UK include debt consolidation, home improvements, purchasing vehicles and paying for holidays.