The financial terms people don't understand
Financial terminology can be tough to digest. Unless you have studied, taken a course in business development to improve your skills or worked in a field related to finance, most financial terms can feel alien to your every-day life. But with words and phrases in areas such as banking, investment, savings, mortgages and retirement more than likely to feature heavily in an individual’s handling and management of their personal finances – the expectation would to be to understand its basic meaning.
However, this isn’t always the case , as according to research by financial services organisation ‘TIAA: Investing, Advice, Retirement and Banking’, only 16% of Americans have a high level of financial literacy compared to 31% of Brits who have signed a financial contract without knowing some or even all of the terminology. And if work in an industry where you're expected to know finance, in a non-financial role, then perhaps learning what different financial terms mean, could help elevate your reputation as a finance wizard.
This study is further echoed by findings from Mintel who discovered that Americans lack confidence in their financial knowledge, with just 19% rating themselves with a ‘grade A’ for financial terms they do understand. Further on, GoBankingRates.com also found that 1 in 3 Americans are in the shadows about simple money terms.
The financial terms people don't understand in America:
Training and qualifications provider TheKnowledgeAcademy.com analysed findings from internet-based market research and data analytics firm YouGov, who surveyed 1,135 American adults to see how confident they are with the meaning of a range of financial words and phrases.
The Knowledge Academy found that ‘savings account’ is the financial term that most Americans are confident about at 88%. Thereafter, 76% claim to be assured by what a ‘credit union’ is –a not-for-profit financial institution which is controlled by its members and operated with the primary purpose of helping its members receive the most competitive saving/borrowing rates.
In third position, 72% of Americans feel confident enough to know what ‘net worth’ represents; usually established by separating one’s ‘assets’ (e.g. homes, cars, jewellery etc) from any ‘liabilities’ they may have (e.g. credit card debt, cars loans, mortgages etc). From the research, 70% of U.S. citizens were equally confident about what ‘assets’ and ‘liabilities’ are.
Also 70% of Americans understand what a 401(k) is – a 401(k) is - a retirement saving plan offered by companies. When an employee signs up for a 401(k), they commit to a certain percentage of their monthly pay to be deposited in the account and some employers even match the employee’s contribution to varying extents.
On the other end of the scale, the American public (52%) were least confident about ‘Bitcoin’, a decentralised digital currency which can be purchased and sold on a highly secure public ledger called blockchain. Perhaps unexpected, given Bitcoins prominent position in the cryptocurrency market and its value noticeably rocketing to sky-high levels at the end of last year (2017). Closely followed, 49% were not as confident as to what an ‘index fund’ is – a mutual or exchange-traded fund that is created to track an index of stocks, bonds or other types of underlying investments.
Joseph Scott, a spokesperson from the TheKnowledgeAcademy.com commented:
“Every industry is riddled with jargon, none more so then in the tricky world of finance. It can therefore feel like a confusing minefield when dealing with financial terminology. Regardless of the difficultly, various financial terms have a considerable presence and impact in the minor as well as major saving and spending decisions of Americans. Consequently, a lack of knowledge of financial terms will mean Americans not having the awareness and competencies to make the best possible decisions when handling a range of situations relating to savings, investments and property management. For many, acquiring better knowledge on financial terminology will be essential for them to achieve a higher standard and quality of living”.
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