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:
-- 41% say information from financial services companies is "not so or
not at all helpful"
-- 67% grade the financial services industry with a 'C', 'D' or 'F'
when it comes to explaining saving and investing to consumers
-- 73% said that financial services professionals use more jargon than
car mechanics
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 MoneySmarts(sm) Website
TEWKSBURY, Mass., April 17 /PRNewswire-USNewswire/ - 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.
(Logo: http://www.newscom.com/cgi-bin/prnh/20070209/NYF043LOGO )
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:
-- Over half (54%) believe that a major reason jargon is used instead
of simpler terms is to distract people from focusing on the fees they will
be paying;
-- 78% said they believe that materials from financial companies are
more about selling than educating;
-- 63% say that a major reason jargon is used is to make a product or
service seem more impressive;
-- 49% believe a major reason jargon is used is to make the consumer
feel less confident that they can handle their own finances.
"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 it?"
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 MoneySmarts(sm) -- 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.
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 http://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
http://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.
SOURCE AARP
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Related links:
http://www.aarp.org
http://www.aarpfinancial.com
Photo Notes:http://www.newscom.com/cgi-bin/prnh/20070209/NYF043LOGO
PRN Photo Desk, photodesk@prnewswire.com
CONTACT:
Rob Densen, +1-212-358-8515 x 1,
rdensen@tillerllc.com, or Heather Emerson, +1-212-358-8515 x 4,
hemerson@tillerllc.com, both of Tiller, LLC, for AARP
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