Plan Fiduciary Financial Literacy: Keeping It Simple

Plan fiduciary financial literacy gaps often hamper plan participants’ understanding of complex concepts and terms.  Not a surprise, but investing is a complex topic, so it can be challenging to explain in simple terms that everyone can understand.  In addition, plan fiduciary financial literacy can be an issue for retirement plan participants.  It can also hinder retirement plan committees from fully understanding and carrying out their fiduciary responsibilities.  Therefore, retirement plan committees need to avoid the use of industry jargon when communicating to plan participants.  Retirement committees also need to maximize their understanding of plan fiduciary financial literacy.  This will help participants to achieve desired outcomes.

New research from Hearts & Wallets finds that using simple, clear language can help boost financial literacy – and retirement plan savings rates.  Hearts & Wallets is a research and benchmarking firm that specializes in how consumers save, invest, and seek financial advice.

The report is titled “Financial Fluency: What Consumer Understanding of the Language of Finance Means for Advice, Retirement and Asset Management.”  The report examines consumer understanding of the language of investing.  This includes the connection to financial needs and behaviors.  Also addressed are the implications for advice and asset management.

Hearts & Wallets recognizes that the language of investing is complex.  Most people lack financial literacy.  Despite the industry’s efforts, 81% of consumers struggle with financial literacy of investment terms, according to Hearts & Wallets.

In addition, retirement plan participants have the most challenges and lack the retirement plan financial literacy.  This makes it difficult for them to select investments appropriately.  For retirement planning – one in three potential participants don’t know any definitions for four basic investment selection terms.  Only 19% of Americans achieved a passing grade on the quiz.

The Hearts & Wallets research shows clear definitions make a difference when it comes to plan fiduciary financial literacy.  For example, consumers confused over the term “passive investing,” save less and use fewer investment products.  And that confusion is pervasive:  More than half of consumers (51%) selected “don’t know” instead of one of the two definitions on the quiz.

In addition, complex language not only hinders financial literacy, it also deters retirement plan participation.  Workplace programs don’t improve financial literacy with basic investment selection terms.  Just 28% of consumers who use workplace resources as their “go-to” for investing information and advice are in-the-know about three or more investment terms, according to the research.

Retirement plan committee members who are confused by industry jargon can, and should, push back on providers to simplify.  After all, if those managing the plan and its investments are confused by the terminology nobody wins.  It stands to reason that those using the plan will be confounded as well.

The opportunity, and the obligation, to simplify the language of investing and retirement planning begins with providers.  Many providers have made an effort to do just that in recent years.  The Hearts & Wallets survey results show there is still more work to be done.  Accordingly, we need to help increase retirement fiduciary financial literacy among American consumers.


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