Improving financial literacy can widen options and help to minimise unnecessary financial risk.
- 44% sometimes feel confused when talking to financial experts.
- A quarter have found themselves in financial difficulty by not questioning financial jargon on paperwork.
- One in five are put off applying for a personal loan because of confusing terminology.
- Most likely uses for a loan are buying a car, home improvements, consolidating debts, holidays, and medical bills.
New research has found that seven in 10 Brits are left overwhelmed by the amount of jargon used around money and savings.
Half admitted they did not understand personal loans, APR (Annual Percentage Rate), interest rates, tax codes, dividends, rebates or the stock market. Whilst just a fifth are confident they could explain what an unsecured loan is.
The research, commissioned by Post Office, found a further one in six have been caught out when using financial terminology in a social situation by not knowing what it really meant.
It also emerged that over half of Brits don’t have a clue what their credit score is – but do know what it means, while 66 per cent had no idea what the Bank of England interest rate is.
The high rate of confusion caused by ‘overwhelming’ financial jargon has put Brits off borrowing, with one in five citing it as an obstacle preventing them from applying for a personal loan.
Despite this, 59 per cent of Brits have previously applied for one with an average borrowing of £8,000. The most popular reasons for taking out personal loans were for buying a car, home improvements, debt consolidation, holidays and to cover medical bills.
With 18–25-year-olds making up 40% of Brits to take them out for plastic surgery, pets and student debt. Whereas 35–44-year-olds had the highest probability of using a personal loan to pay for a wedding and debt consolidation at 27% and 25% respectively.
Over a third said they chose to use a personal loan to feel more in control of their finances, with a quarter saying it provided more structure to help with repayments than overdrafts and credit cards. Whilst a fifth felt it was less awkward than borrowing from family or friends.
The Post Office’s research also found that 44 per cent admit they sometimes feel confused when speaking to finance experts – with a fifth not questioning the meaning or jargon in such a situation. A third said they keep quiet as they don’t want to show their ignorance while 22 per cent would just sign on the dotted line and hope for the best.
However, this has seen almost a quarter end up in difficult situations financially as a result of not questioning the wording in paperwork.
Ed Dutton, Director of Financial Services Products at Post Office, added: “The financial world is full of jargon and phrases which can be confusing. It’s concerning that our data suggests that many adults don’t feel comfortable in challenging what these phrases actually mean, with some willing to sign for something they don’t necessarily understand. We believe it’s important to speak to customers using straightforward language so that they feel confident in their financial decisions.
“Personal loans can be used for a variety of reasons and can help people get to where they need to be, whether that’s buying a car, extending a home or paying medical bills. Yet many are put off exploring this option due to confusing terminology. It is surprising that many do not feel confident on what the Bank Rate is which can have a significant effect on the interest rates of loans and mortgages.
“Taking the time to do your homework and seeking help on jargon along with tools such as loan checkers – to determine loan eligibility – are really valuable in deciding whether this is the right product to meet your needs. This can help to identify financial options which may be better suited to the individual.”