We can’t tackle financial illiteracy without tackling the language
Guest post by Veronica Armstrong
About our guest blogger
Veronica brings her knowledge and experience as a securities lawyer who:
led the International Division’s legal team at a major South African bank
led a project at that bank to make banking more accessible to customers
worked for the BC Securities Commission, a provincial regulator of the financial industry
now consults for investment firms on securities law compliance and helps them rewrite their policies into clear language
is developing a plain language glossary of financial terms that both consumers and industry can use to improve financial literacy
Financial literacy means knowing the tools you need to manage and grow your money
But how do we do that if we don’t understand the language? The gap between the language the financial services industry uses and the consumer’s understanding is already a chasm. In this fast–changing world of cryptocurrency, digital assets, and artificial intelligence, how does the consumer keep up?
Each industry has its jargon, and the financial services industry is no different. The laws that govern the industry—and there are many, which are overseen by multiple government agencies—are complex. Different sectors within the industry use similar words to mean different things. And acronyms abound! In the Canadian securities industry, this is compounded by the use of a numbering system for rules that lends itself to its own cryptic shorthand. For example, National Instrument 41‐101 for requirements relating to prospectuses becomes 41‐101.
Tackling financial literacy without tackling the language is like teaching a person to fish without a fishing rod
It’s possible, but neither practical nor effective. There are rules requiring people who work in the financial services industry—whether in banking, insurance, or investing—to use plain language when dealing with clients. However, those rules won’t work if the people subject to them can’t translate their own jargon. I believe there are three main reasons for this:
It’s not easy switching languages
Financial advisers (I use this term in its broadest sense) spend years learning and becoming immersed in the language of their field. They spend their days reading material and talking with peers where that jargon is commonplace. The terminology is familiar; they’re in the comfort zone using it. It’s natural for jargon to creep into conversation with their clients. But unless their clients ask for explanations (and many won’t, not wanting to sound foolish or ignorant), it may not occur to the adviser to translate into words the client will understand. Even if the adviser asks whether their client understands and the client bravely says no, the advisor is often at a loss to explain because they themselves haven’t learned how.Professional people want to sound smart
Humans have an unconscious (and sometimes conscious) desire to show how smart we are. Take university students as an example. There’s no question that they must have a certain skill to get admitted in the first place. But there’s also a culture—a pull towards adopting multi–syllabic words (even as their conversation with their parents is monosyllabic). It begins with a need to impress professors, but this influence then carries over into the workplace—we assume sounding impressive will make us appear impressive. Sidenote—Does this actually work? Answer coming soon! The effect in this context, however, is that sounding impressive actually interferes with understanding.The range of financial products is growing too quickly for people to keep up
Every day we hear of new ways to make money. Artificial or virtual assets are on the rise, bringing their own jargon and cachet. Want traditional stocks but don’t know which ones to buy? Rather than paying for advice from a professional, hundreds and thousands of consumers are flocking to social media to tell them what the next best thing is. Reddit and WeChat are hotbeds for scammers pushing pump‐and‐dump schemes, as we’ve seen recently. Even after the dotcom bubble burst, there has been no shortage of companies listing on exchanges with no revenue in sight but causing investors to stampede to get in on the act. It’s a struggle to keep up with how things work, let alone figure out how to explain it to people who don’t work in finance.
We must do better if we want Canadians to become truly financially literate. Not everyone will become a sophisticated investor. And that is perfectly acceptable. But everyone should be given the opportunity to understand before they part with their money. And that starts with the financial services industry (and regulators) learning how to speak to the consumer in language the consumer will understand. Be curious about what the consumer knows and does not know. Stand in the consumer’s shoes and see things from their perspective. What do they need to know? What would they like to know? Where can they learn more?
By Veronica Armstrong
If you’d like to hear more from Veronica (or learn about the plain language glossary of financial terms she is developing), go to her website at valc.ca or email her at veronica@valc.ca