Financial acronyms are a barrier to improving financial literacy
Photo by Cottonbro Studios
Acronyms are popular on social media, where terms like "LOL" (laugh out loud), "BRB" (be right back), "FTW" (for the win) and "LMK" (let me know) are widely used and understood. But in banking, acronyms can create confusion rather than clarity.
A survey conducted by Angus Reid for Tangerine Bank revealed that only 3% of Canadians could identify the meanings of six common financial acronyms. These terms included TFSA (Tax-Free Savings Account), RSP (Retirement Savings Plan), GIC (Guaranteed Investment Certificate), ETF (Exchange-Traded Fund), ESG (Environmental, Social and Governance) and ROI (Return on Investment). These are fundamental concepts in personal finance and investing, yet their meanings are not widely understood.
FFD (fast forward) to the results: nearly two-thirds of those surveyed were surprised to find they knew less about financial acronyms than they initially thought. This highlights a significant gap between perceived and actual financial literacy. Many people may overestimate their understanding of financial terminology, as do financial institutions.
Half of the survey respondents said that a better understanding of these acronyms would make them more likely to invest and help them make their money work for them. Imagine the positive impact this could have on collective financial prosperity, with more informed individuals making better financial decisions that could lead to increased savings and investment.
It's not uncommon to see financial institutions promoting offers filled with acronyms, such as, "Earn 4.33% APY with an IRA CD." Consumers are left wondering, "What does this mean? Is this even English?" While financial professionals understand these acronyms, the general public does not. (APY stands for Annual Percentage Yield, IRA for Individual Retirement Account and CD for Certificate of Deposit.) You can find a comprehensive list in this banking acronyms guide.
Ultimately, Angus Reid’s data suggests that it is in a financial institution’s best interest to help people better understand the complex financial language we use in banking. By improving financial literacy, credit unions can foster greater engagement and trust among members.
One effective way to improve your members' financial understanding, including financial acronyms, is to introduce a financial education program into your credit union. At Currency Marketing, we offer a program called It’s a Money Thing that is designed to make financial education accessible, engaging and fun. By demystifying financial jargon and acronyms, we can help members make informed decisions and achieve better financial outcomes.
Tim McAlpine is the Founder & CEO of Currency Marketing. He is best known for developing the It's a Money Thing Financial Education Program that credit unions from around North America are using to connect with new young adult members. He is also a driving force behind CUES Emerge, an emerging leader program that combines online learning, peer collaboration and an exciting competition component.
