Failure to read small print

This story/ad/column hybrid thing on the Herald site is making a good point, that people don’t read the detailed terms and conditions of things. Of course, reading the terms and conditions of things before you agree is often infeasible — I have read the Auckland Transport HOP card T&Cs, but I don’t reread them to make sure they haven’t changed every time I agree to them by getting on a bus, and it’s not as if I have much choice, anyway.  When the small print is about large sums of money, reading it is probably more important.

The StatsChat-relevant aspect, though is the figure of $1000 per year for failing to read financial small print, which seemed strange. The quote:

Money Advice Service, a government-backed financial help centre in the UK, claims failure to read the small print is costing consumers an average of £428 (NZ$978) a year. It surveyed 2,000 consumers and found that only 84 per cent bothered to read the terms and conditions and, of those that did, only 17 per cent understood what they had read.

Here’s the press release (PDF) from Money Advice Service.  It surveyed 3000 people, and found that 84 per cent claimed they didn’t read the terms and conditions.

The survey asked people how much they believed misunderstanding financial terms in the last year had cost them. The average cost was £427.90.

So the figure is a bit fuzzier: it’s the average of what people reported believing they lost, which actually makes it more surprising. If you actually believed you, personally, were losing nearly a thousand dollars a year from not reading terms and conditions, wouldn’t you do something about it?

More importantly, it’s not failure to read the small print, it’s failure to understand it. The story claims only 17% of those who claimed to read the T&Cs thought they understood them — though I couldn’t find this number in the press release or on the Money Advice site, it is in the Mirror and, unsourced, in the Guardian.  The survey claims about a third misunderstood what ‘interest’  meant and of the 15% who had taken out a payday loan, more than half couldn’t explain what a ‘loan’ was, and one in five didn’t realise loans needed to be paid back.

As further evidence that either the survey is unreliable or that it isn’t a simple failure to read that’s the problem, there was very little variation between regions of the UK in how many people said they read the small print, but huge variation (£128-£1014) in how much they said it cost them.

I’m not convinced we can trust this survey, but it’s not news that some people make unfortunate financial choices.  What would be useful is some idea of how often it’s really careless failure to read, how often it’s lack of basic education, how often it’s gotchas in the small print, and how often it’s taking out a loan you know is bad because the alternatives are worse.