Americans Befuddled by Financial Jargon Make Investing Mistakes

May 5, 2008

This article is included in these additional categories:

Financial Services | Regulatory

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 by AARP Financial Inc.

More than half (52%) of 1,203 adults surveyed said they’ve made an investment that had an unfavorable outcome – such as unexpected taxes or early-withdrawal penalty – because they were “confused” by or “didn’t understand” the investment.

Confusion Rules

  • 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.


  • 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.
  • 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.

Jargon Costly

  • 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%).
  • 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 more 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.

Not Making the Grade

  • 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.”
  • Four in 10 (41%) said information from financial services companies is “not so” or “not at all” helpful.
  • Almost three-quarters of those surveyed (73%) said financial professionals use more jargon than their car mechanic and more than half (52%) said financial professionals use more jargon than doctors.
  • Troublingly, many Americans said poor communication is intentional (agreed or somewhat agreed with statement):


“These findings are a call to action for the financial services industry,” said Richard “Mac” Hisey, chief investment officer at AARP Financial, a taxable subsidiary of AARP. “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?”

About the study: 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.

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