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Missed Meanings = Missed Opportunities:
Over Half Say Confusion, Misunderstanding Have Contributed to Investment Mistakes
Lost in Translation: Financial Services Industry Receives Poor Grades for Communication:
Many Americans Believe Industry's Use of "Financial Speak" Makes Matters Worse
Back to Basics: AARP Financial Inc. Cuts Through the Clutter With Jargon Help, AARP Financial MoneySmartssm Website
TEWKSBURY, MA, April 17, 2008 — Most Americans find the language of Wall Street technical and confusing and may be making investing mistakes and missing opportunities as a result, according to a nationwide survey released here today by AARP Financial Inc.
More than half (52%) of 1,203 adults surveyed said they've made an investment where they had an unfavorable outcome —- like owing unexpected taxes or paying an early withdrawal penalty — because they felt "confused" by or "didn't understand" an investment.
"What we have here is a failure to communicate," said Richard "Mac" Hisey, Chief Investment Officer at AARP Financial, a taxable subsidiary of AARP. "The relatively straightforward process of saving for the future has become incredibly complicated."
"The research shows that investing has become unnecessarily complex, confusing and, in some cases, intimidating," Hisey said. "As a result, many American investors have saved too little — most with less than $50,000 for retirement — or are too intimidated to get started in the first place."
The survey of 1,203 adults age 18 or older was conducted by telephone from January 23 to February 10, 2008 by GfK Roper Public Affairs & Media, a division of GfK Custom Research North America. The margin of error for the sample of 1,203 respondents is plus or minus 3.8 percentage points.
Confusion Reigns
More than half of those surveyed (54%) said they do not read financial literature because "it's too hard to understand."
When asked to compare various communications, 82% said their car insurance policy is easier to understand than a mutual fund prospectus, and 79% find prescription drug inserts easier to understand.
"Many people are more likely to read the nutritional information on a cereal box than read a mutual fund prospectus before they buy," said Hisey. "The recent efforts by the SEC to simplify the prospectus are a long stride in the right direction. Investors need quality, not quantity, of information."
Less than one-third of those surveyed said they understood the terms "basis point," "expense ratio," or "index fund" well enough to explain them to a friend or co-worker. Not surprisingly, half of those surveyed described themselves as "not so" or "not at all" knowledgeable about investing, and more Americans feel confident in their ability to select the right surgeon for a major surgery than feel confident about choosing the right investments.
Financial Jargon: Costly for Many Americans
The use of complex financial terms and jargon is not only causing a sense of confusion among Americans, it is also costing them money.
Over half—52%—of those surveyed said they've made an investment mistake because they were confused by or didn't understand an investment. Specific mistakes cited by respondents include failing to or waiting too long to invest because of confusing information (cited by 30%) and making an investment they regretted because they didn't understand it (28%).
"Financial jargon can have painful and enduring consequences," Hisey said. "Americans face enough roadblocks on the road to a financially secure retirement. Poor communication should not be one of them."
The survey found that one out of six Americans have failed to sign up for a retirement plan at their job because they didn't understand how it worked, and better than four in ten (44%) said they don't understand how an IRA account works.
Less than one in five (19%) survey respondents said they are very confident they will have enough money to live comfortably in retirement, due in part to this confusion.
Financial-Speak Doesn't Make the Grade with Consumers
Not surprisingly, Americans believe the financial services industry has done a poor job of communicating.
Asked to grade the financial services industry on how well it explains saving and investing to consumers, two-thirds of survey respondents gave the financial services industry a "C", "D" or "F".
Better than two out of five (41%) said information from financial services companies is "not so" or "not at all" helpful. The financial services industry does not compare favorably to other industries in its use of technical language and jargon. Almost three-quarters of those surveyed (73%) feel financial professionals use more jargon than their car mechanic and more than half (52%) feel financial professionals use more jargon than doctors.
"The language of investing remains a foreign tongue to too many Americans," Hisey said. "When it comes to simplifying the investment process, we in the industry have a long way to go. We've made it incredibly easy for Americans to spend and create debt, but unnecessarily difficult to invest comfortably and with confidence."
Troublingly, many Americans believe that poor communication is intentional:
"These findings are a call to action for the financial services industry," Hisey said. "Ultimately, no one is well-served by this confusion — not the industry, not consumers and certainly not our relationship with the investing public. We talk a lot about transparency in this industry but not enough about simplification and understanding. What value does disclosure bring if the average investor can't comprehend?"
AARP Financial Offers Jargon Help, Special Website
As part of our efforts to demystify the investing process and provide investors with clear, straightforward information, AARP Financial has launched MoneySmartssm—a special website offering information on the AARP Financial survey, and interactive tools including a basic glossary, a financial quiz, a fill-in-the-blank exercise, as well as a concise guide to five basic investing principles.
"At AARP Financial, we believe that if all of us — from investment companies to financial advisors to the media — make a concerted effort to enhance our communications with the investing public, then we may meaningfully advance not just their investment acumen and comfort but their financial well being as well," said Hisey.
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EDITOR'S NOTE:
AARP Financial has created a dedicated web site - www.moneysmarts.com - to help your readers with basic investing terms and questions. The site includes a report on our research, a quiz, a basic glossary (The Jargonator), and a financial jargon word game. Understanding that individual investment advice is essential to getting investors on the right track, AARP Financial also offers knowledgeable and experienced financial advisors to help individuals make informed investment decisions. They are available at 1-888-778-6184 to help with basic investing questions.
Survey Methodology: To permit in-depth analysis of Americans age 50 and older, the randomly selected national sample of 1,203 respondents included 400 people 18-49 years of age and an over-sample of people 50 and older. The sample was randomly selected using RDD (random digit dialing) methods and was weighted to U.S. Census statistics to correct for the over-sampling of people 50 and older and to ensure that the survey is representative of the U.S. national population 18 and older.
About AARP Financial Inc.
Founded in 2005, AARP Financial Inc. is a wholly owned taxable subsidiary of AARP.
AARP Financial Inc. is dedicated to helping people age 50 and over prepare for a more secure financial future by offering products and services designed to meet their retirement needs and supporting them with clear information and guidance. We are proud that AARP Financial won the Mutual Fund Education Alliance's 2006 STAR Award for Best Investor Fulfillment/Prospectus Kit and Best Retail Retirement Kit by a small company. Visit us at
www.aarpfinancial.com for more information.
AARP Financial offers a carefully chosen array of investment products and guidance, including mutual funds from AARP Financial, designed to meet the needs of investors at any life stage; auto and home insurance through The Hartford; credit cards through Chase; online savings and checking accounts and certificates of deposit through the AARP Financial Savings Center powered by Waterfield Financial Services, Inc.; life insurance and lifetime income annuities through New York Life; and mobile home and motorcycle insurance through Foremost. Please visit us at www.aarpfinancial.com for more information.
While AARP endorses the services provided by AARP Financial Inc., AARP does not offer financial products or services itself and cannot recommend that you or any specific individual should purchase any particular product or service. AARP Financial Inc. is a registered investment adviser and a subsidiary of AARP.
*AARP Financial Inc. does not provide tax advice. Please consult a tax advisor for information pertaining to your particular situation.
About AARP
AARP is a nonprofit, nonpartisan membership organization that helps people 50+ have independence, choice and control in ways that are beneficial and affordable to them and society as a whole. AARP does not endorse candidates for public office or make contributions to either political campaigns or candidates. We produce AARP The Magazine, the definitive voice for 50+ Americans and the world's largest-circulation magazine with over 33 million readers; AARP Bulletin, the go-to news source for AARP's 39 million members and Americans 50+; AARP Segunda Juventud, the only bilingual U.S. publication dedicated exclusively to the 50+ Hispanic community; and our website, AARP.org. AARP Foundation is an affiliated charity that provides security, protection, and empowerment to older persons in need with support from thousands of volunteers, donors, and sponsors. We have staffed offices in all 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands.
