Wall-Street Topics Can Be Written in Main-Street Language

Did you know that a wall-street topic can be written using main-street language? If your mission is to make a difference in the lives of your learners, you better figure this one out. 809’s founder Steve Froikin has made a career doing this.

Here, as an example, is a piece of writing about a financial concept called the “time-value of money” as it relates to an annuity.

An annuity is a stream of regular payments over a fixed period or over and indefinite period like a lifetime. Here are a few examples:

  • You win $1 million in the lottery, but they don’t pay it to you right away. Instead they send you 20 annual payments of $50,000. Your winnings are a 20 year annuity of $50,000. You get $1 million dollars, sure, but the state lottery commission only had to invest $743,874 at 3% interest to make this happen for you.
  • A particular kind of investment is called an annuity. You invest $200,000 and collect an annuity of $19,268 per year. This represents an annual interest rate of 5%.
  • You set up a regular savings plan through payroll deductions calling for $5,000 to be deposited into an account. The $5,000 payments are an annuity. At the end of 10 years, you will have $62,889 if the funds are invested to earn 5%.
  • You borrow $225,000 to buy that new home you’ve always wanted. You get a 3% mortgage that will require you to pay $11,479 per year over 30 years. The $11K is an annuity to the bank.

Did you notice the common features of all these transactions? Here they are:

  • Equal periodic payments
  • A time period
  • An interest rate
  • A stated value today or at some time in the future (known as present value or future value)

In this course you will learn a simple method for tying these factors together. This method is known as the time-value-of-money calculation (TVM). You can calculate an initial investment (like the lottery commission did). You can calculate payments you can expect to receive if you purchase an annuity product. You can figure the results of a regular savings plan or, just as important, you can figure how much your regular savings investments need to be to reach a financial goal. You can calculate mortgage payments. And much, much more.

. . . and so on . . .

The concepts discussed in this piece could be part of a college-level finance courses or part of a professional education program for financial planners. These concepts are a challenge when you first learn them, so why make the learning process more difficult with opaque language?

There is a neat online app called Hemingway that you can use to rate the readability of any passage of writing you want to put to the test. It’s not the be-all or end-all of good writing, but it is interesting. According to Hemmingway, the passage I just cited on annuities is rated at a 6th grade level of readability. Out of 28 sentences, only 2 are rated as hard to read and none are rated as very hard to read. Only 4 use the passive voice, while Hemmingway advises you to aim for 6 or fewer.

So, it is possible to write difficult topics in clear and understandable writing. Click here to access the Hemmingway App and compare other financial writing.

Writing That’s Not Understood Is Worse Than Useless

Financial concepts are . . . well, usually difficult to understand. We in the financial education business accept that as a given. Our mission is to pierce the fog of rules and regulations and numbers. To accomplish this, three questions must be answered:

  • Who are we trying to communicate with?
  • What do we want them to learn?
  • Why do they want to learn it?

And the last question is key. This is a conversation. The more I know about why you are in the conversation, the more I can help you get what you need out of it. Are you a student, an investor, a sales rep? Each of these individuals have different expectations and different prior knowledge. Knowing this is essential to developing instructional materials that hit the target.

If you don’t hit the target, what have you done? You’ve wasted peoples time. You’ve conveyed erroneous information. You’ve put people to sleep or you’ve angered them.

* * *

809 Financial Education is dedicated to excellence in financial education. This is our first post. Come back again and we’ll continue the conversation.