Jargon in Consumer Information: The Case of Mutual Fund Fees

Abstract

Complicated language impedes decision-making in many contexts. The authors examine jargon in a highly technical setting: the $25 trillion mutual fund industry used by millions of consumers. Regulations require mutual funds to disclose information about fees as part of their marketing materials and correspondence with investors, yet consumers may find this information difficult to understand. The authors demonstrate difficulties with current fee terminology (e.g., “12b-1 fees”) and identify plain language that increases comprehension, decreases subjective difficulty of investment decision-making tasks, leads to greater investment intentions, and improves the quality of choices between funds. In Study 1 (N = 1,575), they test plain language terms and find that consumers understand them better than existing jargon. In Study 2 (N = 500), plain language shifts choices between funds, increasing participants’ tendency to choose the less costly mutual fund in several investment scenarios. In Study 3 (N = 493), plain language terms reduce perceived difficulty and improve comprehension in a financial decision-making task, ultimately leading to increased intentions to invest. The results suggest that modified language could improve investment comprehension, choices, and participation, yielding meaningful benefits for potential and existing investors.