4 min read · Apr 18, 2016
Money. It’s important. Like, really important in that we literally cannot live without it.
So why is it so confusing?
If saving and spending money plays a role in every single person’s life, why is it that only a select few of us can actually understand how it all works?
Now I’m not saying that everyone needs to know every little detail when it comes to their finances. But when you look at the stats, it seems as though most of us don’t even have a basic understanding of how to handle that green stuff in our pockets…
86% of American workers aren’t confident they will have enough money to live comfortably in retirement.
86 percent!! That number is staggering.
What’s equally as scary is how little students are learning about their personal finances. When Jumpstart Coalition gave high school students a standardized financial literacy course, here’s how they performed on average:
1997: 57.3%
2000: 51.9%
2008: 48.3%
So not only are high school students financially illiterate, they’re getting worse!
Why is it that we’re so ill prepared when it comes to our finance, in both education and, well, life?
Think about the type of vocabulary that’s used in the world of finance. It’s littered in jargon, over complex and vague terms that make already confusing concepts even more so.
And that makes the process of learning about it an extremely attractive candidate for constant procrastination. The current state of financial education has long been thought of as content-heavy and boring.
So we avoid it. And instead we fall into the welcoming arms of financial advisors.
If behavioral finance teaches us anything, it’s that our brains suck at managing money. So we naturally want to be told what to do by someone we trust, and this opens the door for an extremely lucrative industry.
Shane Parrish of Farnam Street blog wrote an article about why we follow financial advice, and one of his main arguments is that we want to:
“…we sometimes follow advice because it: (1) relieves us of having to make some very difficult decisions; (2) stimulates our greed; (3) reduces our uncertainty; and (4) reduces our anxiety and fear while building our confidence.”
Parrish goes on to quote William Morris’ How to Get Rich Slowly But Almost Surely: Adventures in Decision-Making, saying,
“people generally are quite willing to be told what to do with their money by a confident, authoritative sounding source…”
But the problem with that is it’s in a financial advisor’s best interest to keep the world of finance in a black box. Using complex jargon allows them to:
- maintain credibility and that “confident, authoritative sounding source”.
- keep you, the client, dependent on their services.
Parrish explains…
“the core of [Morris’s] argument is that research on one’s own plans, attitudes, and emotions is likely to make more of a difference than advice.”
Even if you are to use an advisor or full-service broker to help with your investments, having a better understanding of what they’re doing and why they’re doing it can make all the difference. Having a foundation of financial knowledge means you’ve got more a sense of financial independence. You don’t depend on their word whole-heartedly.
We need to change the way finance is taught to students, and strip away the jargon and complex language that keeps finance in a black box.
In George Orwell’s 1946 essay “Politics and the English Language”, he argues that language is shaped to serve our own purposes. And that if the language with which we communicate deteriorates, so do we.
“If thought corrupts language, language can also corrupt thought. A bad usage can spread by tradition and imitation even among people who should and do know better.”
He says that political language is typically vague and lacks much meaning because politicians inherently avoid conflict. But this makes it harder and harder for politicians to communicate in a clear and transparent way.
The same goes for finance. If there’s incentive to make finance hard to understand, the language with which we teach financial concepts will follow suit.
But we can change the mold. Orwell goes on to list 5 rules-of-thumb to make language simple and clear.
(i) Never use a metaphor, simile, or other figure of speech which you are used to seeing in print.
(ii) Never use a long word where a short one will do.
(iii) If it is possible to cut a word out, always cut it out.
(iv) Never use the passive where you can use the active.
(v) Never use a foreign phrase, a scientific word, or a jargon word if you can think of an everyday English equivalent.
(vi) Break any of these rules sooner than say anything outright barbarous.
Industries far and wide should adopt these guidelines into their everyday communications. If educational bodies — as well as people in the financial industry itself — changed the way financial concepts are communicated, perhaps we could empower our youth with a stronger ability to manage their financial future. We can smooth out the currently obstacle-ridden path towards financial independence.
