Personal finance websites use hard-to-understand English, but credit card websites are the worst culprits. This is what researchers from the University of East Anglia and Manchester Metropolitan University found. Both universities are in the United Kingdom.
Matt Burke and John Fry wrote about their study and findings in the journal Economics Letters (citation below). Burke is a PhD student at the University of East Anglia’s Norwich Business School. Dr. Fry is a Senior Lecturer in Statistics and Financial Mathematics at Manchester Metropolitan University’s School of Computing, Mathematics and Digital Technology.
Credit card websites have complex terminology
The authors analyzed the language that websites for personal loans, payday lenders, and credit cards in the UK used.
While the sites of payday loans were the easiest to read, those of credit cards were the most difficult. Their texts contained the most complex terminology. However, compared to other websites, they all used hard-to-understand English.
The payday loan market in the UK is huge. It is the second largest globally after the US. Payday loans have been associated with financial hardship as well as other socially negative outcomes.
Money saving websites, therefore, usually suggest that customers consider cheaper ways to borrow money. Credit card loans, for example, are much cheaper than payday loans.
Rules and regulations regarding advertising and promotions
The rules and regulations regarding advertising and promotions are the same for all consumer credit providers.
However, rules regarding finance readability are less strict. Rules that limit the level of language complexity in, for example, the promotion of medical products, are much stricter.
The researchers also examined the language used in the promotion of cheaper forms of debt. They compared them to the English that websites promoting payday loans used.
Mr. Burke said:
“Amid much concern over financial literacy, and its associated negative social outcomes, we provide the first known measurement of readability in consumer finance, something regulators have found helpful in other areas.”
Most payday loans in the UK come from websites. The researchers found that only payday loan websites confirmed to the minimally-accepted readability levels.
Payday loans may provide a genuine economic function
Mr. Burke added:
“Borrowers with different risk profiles are offered access to different products. As such there are occasions where payday loans may provide a genuine economic function.”
“One possibility is that readability is simply higher for higher-cost products and reading comprehension is, inevitably, negatively linked with risk. However, credit card websites include more financial terminology and are generally less comprehensible compared to other lenders.”
The authors suggest that future research should focus on whether these websites’ readability and linguistic accessibility affect consumer well-being.
The authors compared the language used in 31 credit card websites with 31 personal loan sites and 21 payday lender sites.
The University of East Anglia stated the following in a press release:
“There is evidence of differences between lender types in terms of both the proportion of financial words used and the webpage length. There is more variation in the length of payday webpages, and the extent to which credit card websites include complex financial terminology is more varied.”
“The authors also suggest that some credit card and personal loan companies may have moderated the extent to which they use financial terminology in order to share qualitative similarities to payday-loan websites.”
Credit cards are not the same as debit cards. With a debit card, the money comes directly from the user’s bank account. With credit cards, on the other hand, the user has to pay the balance in full every month.
Citation
“How easy is it to understand consumer finance?” Matt Burke and John Fry. Economics Letters, Volume 177, April 2019, Pages 1-4. DOI: https://doi.org/10.1016/j.econlet.2019.01.004.
