More than half of British adults feel overwhelmed by financial jargon, with many avoiding their finances altogether, according to a survey of 2,000 people. The research found that 56% feel overwhelmed by terms such as 'capital gains', 'compound interest' and 'variable rate', while 42% say it puts them off investing altogether.
Key terms baffle many
Almost a third (31%) do not fully grasp what 'capital gains' means, while 23% are not confident they could explain what 'APR' stands for. Others struggle to understand an 'unarranged overdraft' (17%), 'credit score' (17%) or 'standing order' (15%).
Fewer than one in five (17%) feel they completely understand the upcoming changes to ISAs, which will see the Cash ISA allowance reduced from £20,000 a year to £12,000 for under 65s, as well as a 22% tax on interest earned on uninvested cash held within a Stocks & Shares ISA. Even among those claiming at least some understanding, 41% could not correctly identify the new Cash ISA allowance as £12,000.
Expert calls for clearer explanations
The study was commissioned by smart money app Plum, which has created a glossary of the most perplexing financial terms. Rajan Lakhani, personal finance expert for the app, said: "Finances can be tricky to navigate, especially with the forthcoming changes to Cash ISAs and Stocks & Shares ISAs."
He added: "Money is something we deal with every day and not understanding something related to our personal finances could cost us dearly. But some of the jargon can be overwhelming – leaving many people simply avoiding their finances and possibly missing out as a result."
Lakhani noted that investing has historically been the most reliable way to help avoid inflation eroding the value of money in the long-term, yet many are missing out because they do not understand the terms. He said: "We want people to feel confident managing their money, so hope these clear explanations of the most confusing terms will help when someone isn't sure what something means and how it will impact them."
Confidence and sources of information
The research revealed that 28% of adults have no confidence in understanding information from banks and financial providers, with 54% feeling overwhelmed when it comes to making savings and investment decisions. The internet remains the go-to resource for financial decision-making (41%), ahead of banks (29%) and family members (21%). However, 27% of Gen Z turn to social media for guidance, compared to just 1% of Boomers.
Clearer explanations from banks (51%), financial education in schools (46%) and the use of less jargon in emails and correspondence (43%) were all cited as key solutions to improving understanding.
Lakhani added: "The research shows confusion about financial terminology makes decisions about money more daunting. It also highlights that many people are not turning to reliable, curated and regulated sources of information. We hope by making bitesize financial information accessible and easier to understand, we can help people of all generations feel assured taking control of their finances and planning for the future."
The top 25 most confusing financial terms and acronyms include ETF, IPO, IBAN, BIC/SWIFT code, AER, capital gains, compound interest, bond, FSCS protection, dividend, APR, Stocks & Shares ISA, accrued interest, maturity, cash ISA, ISA, GBP, remortgaging, unarranged overdraft, credit score, variable rate, mortgage, investment, standing order, and credit limit.
