Financial Jargon Is Costing Customers Hundreds
Consumers are losing more than £400 a year because they do not understand financial terms and conditions.
According to research from the Money Advice Service many customers do not know what key concepts mean at all.
The study of 3,000 UK adults shows this is a particular problem for payday loan customers.
Considering that one fifth of the UK population falls within this group, the fact that 52% could not correctly identify the meaning of the word "loan" is worrying.
These "loans" carry high interest rates (another term that caused confusion) and without regular repayment, can quickly drag a customer into serious debt.
Even common abbreviations used by the financial industry led to confusion:
:: 61% could not identify what EAR stands for (Equivalent Annual Rate)
:: 30% could not identify what APR stands for (Annual Percentage Rate)
:: 22% could not identify what ISA stands for (Individual Savings Account)
:: 32% misunderstood the meaning of the terms "interest" and "budget"
But putting these rather simple, yet admittedly still quite specific concepts aside, the survey reveals three far more worrying facts that put large portions of the population at risk.
First, 84% of UK adults do not read the full terms and conditions when taking out a financial product.
There will be very few people in the country that will not have a debit card, mortgage or car loan.
That means each and every one of them who does not read† the terms of their contracts is taking a chance.
Nearly 31 million people are in the workforce and many of them will be saving into a pension as a result of the Government's auto-enrolment programme.
Yet the term most misunderstood in this survey was "compound interest" - the concept of paying interest on interest already accrued over a number of years, which applies to millions of savings accounts and mortgages.
The Money Advice Service estimates the average UK adult is out of pocket by†£428 per year because of the confusion surrounding all this financial jargon.
Luckily, this year, personal finance officially joins the national curriculum alongside more traditional subjects like history and maths.