Financial jargon: 'huge number' confused by investment terms
People are being put off investing because of all the jargon used in the industry. How well do you understand financial lingo?
New research by Saga has found that a huge number of people don’t understand, or misunderstand, the minefield of jargon put out by the finance industry.
Saga asked 11,500 over 50s to explain a range of financial terms with varying success. Whilst 86% of people knew what a SIPP was, only 59% could explain what a defined benefit pension was – one in ten thought it was the amount of money you get from your State Pension.
Two thirds of people could explain that asset allocation is the mix of investments you choose to hold, but one in five thought it was the amount of an investment you buy.
“The investment industry has often come under the spotlight for being confusing about charges, but now we are able to reveal that even the terminology is off-putting for many people,” says Sally Merritt, head of product at Saga Investment Services.
“This is an unintended consequence of the way the industry has developed over the years. Financial services can be complex, but it’s down to providers to make things as clear as possible.”
The survey also revealed that there is a big gender divide when it comes to understanding investment jargon with more men tending to understand the lingo. For example, three quarters of men knew that AIM stands for alternative investment market, but just 56% of women did. Similarly, 53% of men understand what OEIC stands for, compared to 43% of women.
Breaking the results down by age showed that people become more confident with investment terms as they approach retirement, but not by much. Just 39% of people in their 50s understood what an OEIC was, compared to 46% of people in their 60s.
Jargon busting
Here’s an explanation of the terms that flummoxed some of the people surveyed.
SIPP
It stands for self-invested personal pension and is a pension that gives you the freedom to choose how your money is invested across a range of funds, shares, bonds and other investments. Until you turn 75 any contributions you make will benefit from a Government top-up.
Asset Allocation
This means the mix of different investments you hold. For example, shares, bonds, property and cash.
Return
Both the income and the capital growth you receive from an investment.
OEICs
This stands for Open-Ended Investment Companies. This is a type of investment fund where your money is pooled with other investors cash and used to buy shares, bonds, property or other investments. An OEIC is traded on the stock market like a share with the price reflecting the value of the assets the fund is holding.
Defined Benefit Pension
A type of pension that can also be known as a final salary pension. If you hold one you should receive a pension pay out based on a percentage of your working salary.
Defined Contribution Pension
A type of pension where you build up a pension pot during your working life by making regular personal contributions which are topped up with income tax relief from the Government and contributions from your employer.
Income Drawdown
This is where you keep your pension invested while also taking an income from it. You can decide how your pension is invested and how much income you take from it, but the value of your pension will still fluctuate depending on how your investments perform.
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