(April 2005) Do your clients truly understand all of the information that you communicate to them? If you said "yes," you may want to think again. According to an international literacy study conducted in Canada by Statistics Canada, a huge portion of our population struggles to cope with living in today’s advanced society.

The study shows that Canadians score surprisingly low when it comes to literacy levels. In fact, only 6% of the population is at the highest literacy level (level 5), with an additional 17% at the second highest level.

According to the study, level 3 is required to be able to function properly in today’s complex and text-heavy world, yet only 34% of the population falls in that category. The remaining 43% of our population are in levels 1 (20%) and 2 (23%) and struggle to keep up with the information overload prevalent in our society.

Financial advisors must be mindful of the fact that their prospects and clients may not understand a lot of the information about investing currently available to them. You need to communicate with your clients in a way that they can understand and absorb the information.

Based on our financial literacy research, the Investor Education Fund has developed some guidelines to follow when communicating with each of the different literacy levels:

To download these guidelines in a Word document, click here.

Readability Scores

When preparing written material for your clients, it can be useful to check the readability score of the document. The Flesch-Kincaid Grade Level score can be found when using MS Word. The scores are based U.S. elementary school grade level. For example, a score of 6.0 means that a 6th grader can understand the document.

To use the Flesch-Kincaid test in MS Word follow the steps below:

1. On the Tools menu, click Options, and then click the Spelling & Grammar tab.
2. Select the Check grammar with spelling check box.
3. Select the Show readability statistics check box, and then click OK.
4. When you are ready to check your document, select Spelling and Grammar on the Tools menu. When Microsoft Word finishes checking spelling and grammar, it displays information about the reading level of the document.

Levels 1 and 2

Do not use jargon and make sure that even basic terms are explained.
Use short, simple, declarative sentences.
Use a question and answer format.
Use checklists.
Use only limited detail.
Use charts to visualize concepts.
People at this literacy level should be able to understand material that scores at the Grade 6 level on the Flesch-Kincaid test in Microsoft Word.

Level 3

Use common terms only – make sure that uncommon are explained.
Use simple, reasonably short declarative sentences.
Separate independent clauses into two sentences.
Use case studies and "people" examples.
Use tables, graphs and charts to illustrate.
People at this literacy level should be able to understand material that scores at the Grade 8 level on the Flesch-Kincaid test in Microsoft Word.

Levels 4 and 5

Most investment information currently available is at this level.
Explain jargon at first mention.
Use tables, graphs, charts
People at this literacy level should be able to understand material that scores at the Grade 10 level on the Flesch-Kincaid test in Microsoft Word.

Terri Williams is the President of the Investor Education Fund, a non-profit organization dedicated to developing, distributing and supporting investor education initiatives.

(04/01/05)