SEC “sez” plain language can fix financial literacy

Just how savvy are U.S. investors?  Not as smart as most investment companies would like to think, says the  Securities and Exchange Commission (SEC).  According to their Financial Literacy Report, released this summer as part of the Dodd-Frank Act:

  • Investors do not understand the most elementary financial concepts, such as compound interest and inflation, diversification or the differences between stocks and bonds.
  • They are not fully aware of investment costs and their impact on investment returns.
  • They also lack critical knowledge of ways to avoid investment fraud.

Troublesome conclusions to be sure, especially today as the demise of defined benefit pension plans and uncertainty about Social Security means that successful investing for retirement depends on individual initiative and informed decision-making.

The goal of the SEC Study  was to  “identify the existing level of financial literacy among retail investors” and  explore ways to increase it. The SEC used input from online surveys of several thousand investors and comments from more than 80 individuals, financial professionals, industry groups, academics, not-for-profit organizations, and other regulators.

Its conclusions confirm what most of us who write about investing and finance have known for a very long time: individual investors need more education and better information — and they need it in a readily accessible format and plain language.

As author and editor Susan Weiner, CFA, reminded us recently:  “Keep it simple.”

Susan, who is an accomplished writer (and ghost writer) on financial topics, also offered an eye-popping statistic she had seen in a recent New York Times piece by speechwriter Roger Lehrman:  Americans read at a seventh-grade level.

If you want to reach them, you must write at their level, says Lehrman, “You can’t hand your boss a speech saying, ‘It’s got all of your ideas. But 40 percent of your audience won’t know what you’re talking about.'”

If you’re writing for a general audience, use plain English and keep it short. Short sentences also tend to be easier to understand.

But what if your clients are all college-educated. Do you still need to keep it simple?

Yes, Lehrman says.  “Your writing’s grade level is a measure of how hard you’re making your readers work to understand you. If you make their lives easier, they’re more likely to stick with you.”

 

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