9 OCTOBER 2014: JOHANNESBURG – Today, online research specialist Columinate launched its “Financial Jargon Survey” in South Africa. The study aimed to establish consumers’ understanding of financial jargon commonly used in the financial industry. The study, which surveyed over 1 000 South Africans who each hold at least one financial product, aligns to the Financial Services Board’s suggestion that there is an asymmetry in information available to consumers.
“We conducted this study to assess the state of financial literacy in South Africa, and to raise awareness of the importance of being clear when communicating about financial matters,” says Henk Pretorius, CEO of Columinate.
The survey included terminology that has become commonplace in the Banking, Short-term insurance, Long-term insurance and investment, and Medical aid industries. Consumers were asked about their financial practices and then had to match terms to definitions, ranging from the familiar, such as Electronic Fund Transfer (EFT), to less obvious investment terminology such as Hedge Fund.
What did the survey reveal?
Interestingly, while nearly half of respondents (47%) claimed to have a moderate understanding of their personal finances, and 42% of respondents claiming they have a high understanding, an overwhelming majority (67%) spend only 1-2 hours per week on their finances. The study also revealed that very few South Africans have sensible financial habits, where only 32% of respondents set financial goals for themselves, and 55% of respondents do not even bother to track expenses.
“We also can’t help but wonder if the lack of consumers’ understanding in terms of their financial matters has a direct impact on South Africans financial goals,” continues Pretorius. “72% of respondents are focused on taking care of their families’ everyday needs, whilst a staggering 74% concentrate their efforts on becoming debt free. While these goals are admirable, only 45% of respondents are investing in education, whether for themselves or their family.”
Big differences in knowledge by sector
For each of the industries a pass rate was considered to be correctly identifying 75% of the words from that industry’s terminology.
The result of this grading process showed that only 53% of consumers managed to score above this mark in the Short-term insurance industry. While low, this is still higher than medical aid at 51%, banking at 50% and the long-term insurance and investment industry at a dismal 16%.
Most confusing terms
Not unexpectedly investment terminology puzzled most of those surveyed. Terms like equity (only 20% correct) and hedge fund (only 13%) were poorly understood.
At the same time the survey showed some concerns over the large proportions who could not identify more common terms such as overdraft (23% incorrect) and assets (46% incorrect).
Pretorius warns that there are also challenges in specific parts of the financial services industry where consumers are likely to fail to distinguish between distinct terms. “In the short-term insurance industry home contents and buildings insurance were often mistaken for one another. The worst-case result of this confusion is a consumer that is not adequately insured for something they think they are covered for.”
No specific consumer segments performed well in this quiz, but it was clear that younger and less affluent consumers were least likely to get beyond the 75% pass mark for their knowledge of financial jargon.
“Considering that younger consumers are those most likely to take out new financial products and services this heightens the importance of educating this segment of the market to allow them to make sound financial decisions. The low level of financial literacy and lack of good financial practices mean that consumers are at risk of various negative consequences, such as being unprotected against future risks, and unable to create financial prosperity. This serves as a wake-up call to both consumers and the financial industry alike,” concluded Pretorius.
ABOUT THIS SURVEY
This survey was conducted independently by market research agency Columinate in September/October 2014. A total of 1066 consumers completed the survey online via mobile phones, tablets or computers. The sample consisted of urban consumers and represented a diversity of demographic profiles and income levels. Details about the report and further methodological details is available from firstname.lastname@example.org.