Kristy Dorsey: Learn the language of money

THE language of money will never be the easiest of dialects to master, but to those outside the magic circle, the patois seems needlessly dense, designed for no other reason than to exclude the uninitiated.

One pound coins. Picture: PA

Consider this observation last week from one currency strategist:

“The abnormal low volatility regime that we saw this summer is coming to an end. The divergence of monetary policy between the Fed and the ECB is behind this, but for a move higher, the catalyst we probably need is a sharp rise in short-term US rates.”

Huh? It’s English, to be sure, but not as most know it.

Pick it apart and the quote simply says that there have been no sudden and sharp changes in the value of the world’s major currencies in recent months. But that is now likely to change, with the US and Europe moving in different directions on interest rates.

The last six years have been positively littered with jargon hauled into the spotlight from the obscurity of specialist nomenclature. Who apart from a few technical savants were even aware of credit default swaps prior to the financial crash? And how many average punters knew of Libor before that particular scandal broke out?

The diction of finance can be enigmatic, sometimes purposefully so. But more often than not it’s complicated because the underlying realities are complex. The language of money frequently compresses an entire series of causes and effects into a single word or phrase, making it a potent but exclusive form of communication.

So it’s tough, yes, but prohibitively so? No. It is every individual’s responsibility to reach a reasonable level of financial literacy. Few of us have the luxury of the kind of wealth that renders budgeting pointless, so things like inflation, interest rates and the return on pension investments have a direct bearing on our lives.

Sad then to see the results earlier this month from research carried out for Treasury-backed financial provider NS&I. Among other things, it found that one-third of Britons do not know what a Bacs payment is, while nearly two-thirds haven’t a scooby what AER stands for (annual equivalent rate – used to help compare returns on savings accounts).

In addition, nearly half are unfamiliar with the term Isa, the shortened form of “individual savings account”.

That is not good enough. AER, Bacs payments and Isas are not the stuff of high finance, but rather common, need-to-know phrases for anyone interested in making, having or saving money.

It is thought that as many as four-fifths of adults do not understand the lexicon of finance, which excludes them from the conversation on a pivotal facet of both broader society and individual well-being.

Ignorance is no defence, but rather a form of consent that cedes power to the few who are fluent in the language. «