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Consumer duty - consumer understanding worse than we think

Journalist: Jane Matthews, FTAdviser

ended 07. March 2023

Hi Newspagers,

Some new research has been released that shows consumer understanding of standard financial terms is lower than some in the industry might expect. 

2,000 consumers were asked about their understanding of key financial terms, topline results include: 

  • Most (83%) said they could explain ‘inflation’ – but when tested, only 57% picked the real definition from a list. 
  • Two thirds (65%) of people said they understood ‘APR’ – but only half (50%) got it right.
  • 20% do not think communication from their bank is clear
  • A third of people who have bought something on credit ended up paying more than they originally thought they would. 
  • More than a third (35%) of people who are struggling financially have made a mistake with their finances because they didn’t understand the wording.

Disabilities: 

The research also highlighted the views of those with disabilities and parents of children with disabilities.

  • A quarter (24%) of those with disabilities think that communication from their bank is confusing and are twice as likely to have made a mistake with their finances because they did not understand the wording (29%). 
  • More than half (55%) of parents to children with disabilities have opted into something with a bank or financial service that they did not need because they did not understand the wording, versus 18% of parents to children without disabilities.

One of the researchers provided a rationale for this: ‘What struck me about these results is all the things that make it less likely that you understand tricky financial terms: if you have a disability, if you’re struggling, if you have kids, if you’re young, even. All of these factors get in the way, because naturally you have bigger things to worry about. Financial firms need to think about the stresses people are under in real life while they’re trying to understand some gobbledygook in 20 pages of Ts & Cs.’

It would be great to get your thoughts on this, you might consider the below questions if you are interested in providing a short comment: 

  1. Are you surprised by these results or do they align with your dealings with clients? 
  2. Have you been taking steps to simplify your client communications in light of the consumer duty - if not does research like this make you reevaluate that decision? 
  3. Is there more you would like to see banks and financial institutions do to support consumers with understanding? 

Many thanks, 

Jane

4 responses from the Newspage community

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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
This is not surprising, but upsetting reading. Given the consequences we know of from getting into debt, it is disappointing that we arent supporting the most vulnerable in society by ensuring financial institutions are offering, not jut clear but, readable information so everyone can understand it. The level of financial literacy in the UK is low, so to ensure we are protecting those must vulnerable the information provided about financial products must be easy to understand and in a language that everyone knows.
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
Sadly many people will either overestimate their financial awareness and so feel overly confident in their ability to sort things out themselves online, or they will feel very lacking in confidence and will often then opt for the path of least resistance; so going direct to their bank or taking the finance from the car dealership for example, with little or no shopping around. Whilst this is not great at least taking a personal loan at 8.9% when you could have got 6.9%, as an example, is only going to cost a few hundred pounds extra. Making a mistake on a larger commitment, like your mortgage, could see you overpaying by thousands. Mortgage advisers are there to help guide you through the jargon and lingo, they can take the time to ensure you understand things and get the best outcome.
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Graham Wells
Founder and Financial Coach at GroWiser Financial Coaching
I'm not at all surprised by this research and it absolutely reflects the frustration and confusion I hear from clients. In fact, this is one of the key reasons I switched from being a provider of advice to a provider of learning and coaching. It's heartening to see more financial education creeping into schools and workplaces. It's great that some financial services firms are adopting plain language and more informal methods of communication. But there's still a long way to go. I regularly come across client scenarios where it can take hours of phonecalls, emails and research just to track down and understand basic pension information. I look forward to the days when financial information is presented with the customer in mind, rather than satisfying overly cautious compliance and legal departments.
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Graham Cox
Director at Bridging Hub
The research highlights how parents of children with disabilities are three times more likely to opt-in to a financial service or product they don't need.

As a father to a 15-year-old boy with learning difficulties, it's easy to understand why that could happen. Financial decisions made in haste are often poor ones. Perhaps the cooling-off periods for financial products need to be extended to help compensate.