Majority of Brits don’t understand investment funds, survey finds

A majority of Brits lack knowledge of key financial and investment terms, a new study from Hargreaves Lansdown has found, underscoring the scale of the challenge to encourage more people to invest for the long term.

Only 37 per cent of Brits could correctly identify an investment fund, according to a survey of 2,000 people by Opinium for the investment platform.

Picking from five possible descriptions of a fund, just over a third selected correctly, with 11 per cent describing a fund as money held in shares and five per cent thinking it was a type of savings account.

Only 28 per cent of women were able to answer the question correctly, compared to 48 per cent of men, which the investment platform said left the group less likely to invest due to a lack of understanding.

“Part of the solution lies in how the financial industry uses language, and an understanding that terms that are familiar to investors are alien to non-investors,” said Sarah Coles, head of personal finance at Hargreaves Lansdown.

Investment ignorance

A majority of respondents to the Hargreaves Lansdown survey (54 per cent) also said they didn’t know what the word ‘compounding’ meant in an investment context, with more than a fifth saying they had never heard the term at all.

Meanwhile, only 13 per cent could correctly identify that the word ‘equity’ and the word ‘share’ are used interchangeably when talking about stock market investments.

19 per cent thought an equity was a more complex financial instrument, while 14 per cent thought a share was something you hold while an equity is something you invest in. 46 per cent said they didn’t know at all.

“This isn’t just some of the complex jargon attached to more advanced investment strategies, it includes the basics that beginners need to get their heads around, like ‘investment funds’, ‘shares’, ‘equities’ and the concept of compounding,” said Coles.

“These are so fundamental to taking your first steps into investment that there’s an urgent need to breach the knowledge gap.”