A poll of 2,000 adults has revealed that 56% are overwhelmed by financial phrases, with 42% admitting this puts them off investing. The study, commissioned by smart money app Plum, found that nearly a third (31%) don’t fully understand what is meant by ‘capital gains’, while 23% aren’t confident they could explain what ‘APR’ means.
Most confusing terms
Others don’t feel they know what an ‘unarranged overdraft’ (17%), 'credit score' (17%) or 'standing order' (15%) is. The top 25 most confusing financial terms and acronyms include ‘capital gains’, ‘compound interest’ and ‘variable rate’.
It also emerged less than one in five (17%) feel they completely understand the upcoming changes to ISAs, which will see the Cash ISA allowance changed 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 who said they had at least some understanding of the changes, 41% could not correctly identify the new Cash ISA allowance as £12,000.
Impact on confidence
The study found 28% of adults don’t feel at all confident in understanding information from banks and financial providers, with 54% feeling overwhelmed when it comes to making a savings and investment decision.
The internet is the top place people turn to help them make a financial decision (41%), ahead of banks (29%) and family members (21%). But 27% of Gen Z turn to social media, compared to just 1% of Boomers.
Solutions proposed
Clearer explanations from banks (51%), being taught banking terms in school (46%) and using less jargon in emails and information (43%) were all top solutions to a better understanding.
Rajan Lakhani, personal finance expert for Plum, said: “Finances can be tricky to navigate, especially with the forthcoming changes to Cash ISAs and Stocks & Shares ISAs. 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.
“For example, investing has historically been the most reliable way to help avoid inflation eroding the value of your money in the long-term, yet many people are missing out because they don’t understand the terms. 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.”
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.”
