Learning about finance and how to manage your money is like learning a new language.
Capable investors and financial experts know what terms like annuitization, decumulation, derivative instruments and fiduciary responsibility mean, but to the rest of the world, you might as well be speaking in Ancient Greek.
The key to communication is speaking in a language that everyone understands.
With its new plain-English requirement for prospectus profiles, the Securities and Exchange Commission is taking an important step in helping the average investor understand whats happening to their life savings.
But fund companies can do more than just meet the minimum requirements.
Many of the executives to whom Ive spoken recently have stressed the importance of improving financial education among the general public. One executive I talked to last week said he gives speeches to high schools about finance during his spare time.
High school students arent required to take money management or finance courses, he said, and if they dont go into the business field, most consumers wont ever really understand how the stock market functions or the difference between stocks, bonds and mutual funds.
This executive said he has no trouble communicating with these students because he speaks in plain English at their level. Even a basic understanding of credit and interest can give people a huge advantage in life, he said.
Should schools put more emphasis on finance and business courses? Many community groups and colleges offer adult classes on finance, but the public also needs to start showing some initiative of its own by filling up these classes and taking an active interest in their finances.
Both the asset managers and the investors can work from opposite ends to bridge this communication gap.