Be honest: Do you understand your mutual fund prospectuses? Have you even attempted to decipher their confusing terms, fine print, and incomprehensible language? Complex financial jargon is leading Americans to make investment mistakes, an AARP Financial survey found.
Fewer than a third of those surveyed said they understand the terms "basis point," "expense ratio," or "index fund" well enough to explain them to a friend. And 52 percent said they've made an investment mistake because they were confused by or didn't understand an investment. More than three quarters of respondents said that their car insurance policy and prescription drug inserts are easier to understand.
Specific mistakes they cited include failing or waiting too long to invest because of confusing information (30 percent) and making an investment they later regretted because they hadn't understood it (28 percent).
"Many people are more likely to read the nutritional information on a cereal box than read a mutual fund prospectus before they buy," says Richard Hisey, chief investment officer at AARP Financial, a taxable subsidiary of AARP, in a statement.
Indeed, some 54 percent of respondents said they do not read financial literature at all because it's too hard to understand. The survey of 1,203 adults over age 18 by GfK Roper Public Affairs & Media included an oversample of adults 50 and older. The results were then weighted using U.S. census statistics to correct for the surplus of seniors.
Even if you have specific and intelligent questions, getting a straight answer out of a financial services company (after you've pressed 1, 6, and 2 and waited on hold for the next available representative) can often be difficult. The AARP Financial study found that 78 percent of respondents believe that materials from financial companies are more about selling than educating. They also believe that jargon is used to make a product or service seem more impressive (63 percent), to distract investors from focusing on the fees they will be paying (54 percent), and to make consumers feel less confident that they can handle their own finances (49 percent).
In answer to this criticism of the financial services industry, AARP Financial, which receives advisory and service fees, developed a consumer-oriented financial information website, MoneySmarts, which includes a financial quiz, a word game, and an inane red robot called the Jargonator that dances and beeps amid a short glossary of commonly misunderstood financial terms defined in plain language.
Please tell us about the financial jargon you find incomprehensible below, and we'll try to find out what it means.
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