Personal Finance: Jargon may be costing you money

May 16, 2008

Basis point. Expense ratio. Index fund. If you can't define these terms, you're far from alone. Less than a third of investors who responded to a recent survey said they comprehended these phrases well enough to explain them to a friend or co-worker.

Basis point. Expense ratio. Index fund. If you can't define these terms, you're far from alone. Less than a third of investors who responded to a recent survey said they comprehended these phrases well enough to explain them to a friend or co-worker.

Similar misunderstandings can spell a hit to the pocketbook: More than half (52 percent) of 1,203 adults surveyed for AARP Financial, a subsidiary of AARP, said they've made an investment that had a poor outcome-like owing unanticipated taxes or paying an early withdrawal penalty-because they felt "confused" by or "didn't understand" what they were purchasing. Most respondents said they believe poor communication is no accident; 78 percent feel that the materials they receive from financial professionals are designed more to sell than to educate. In fact, an overwhelming majority of people said their car insurance policy and prescription drug inserts were easier to understand than a mutual fund prospectus.

Related Content:

Money | News