Perhaps the battle for global financial literacy should begin, not in classrooms and places of work, but inside the walls of our largest financial institutions. If bankers would just speak in a language more people understand it might solve a lot of issues, new research suggests.
Jonathan Fullwood, an analyst at the Bank of England, recently examined the language used in financial texts from mutual fund profiles to central bank research and policy papers. He concluded that the financial industry places a ridiculously high demand on those who bother to read the sector’s missives.
As a journalism student years ago, I was taught that a newspaper should be written in language that a 6th grader could understand. Blockbuster novels are generally written in language that a 7th grader can understand. The reasons are clear: you want as many people as possible to read and comprehend what is written.
Yet Fullwood found that financial institutions write at a 12th grade level; his own Bank of England writes at a level for college students in their sophomore year. No wonder consumers skip the fine print on their mortgage and credit card documents—they’d need half a day and a dictionary to get through it.
Writing in The New York Times Magazine, John Lanchester goes so far as to assert that this is willful behavior on the part of bankers because it puts them in control. But I believe the bigger issue is the complexity of the topic and that bankers are not trained to communicate to a mass audience.
Certainly, the subject can be simplified. Financial journalists do it everyday. And as Fullwood points out: Nobel Prize-winning physicist Richard Feynman was able to explains Heisenberg’s Uncertainty Principle in language for an 8th grader. Loan terms aren’t that tough.
Esoteric language in finance won’t go away any time soon, and Fullwood’s analysis underscores the critical nature of introducing financial concepts to students at an early age—and continuing financial education through life. Individuals may never take the time to fully grasp the fine print. But if they know enough to be skeptical and ask the right questions they will be less likely to make a mistake.
The upshot for educators and parents: it pays to keep money lessons simple. For financial pros, I suggest a litmus test I have long used as a journalist. Explain it to your mother until she understands. That’s when you know you have the right language.