Opinion: Should we make financial terminology more accessible?

Close up of British currency coins sat on top of a leather wallet

If you've ever wondered what a gilt is, in financial terms, read on... - Credit: Getty Images/iStockphoto

Like many cricket fans, I was perturbed to read this week that the England and Wales Cricket Board (ECB) intends replacing the words ‘wickets’ with ‘outs’ and ‘batsmen’ with ‘batters’ when the new Hundred competition starts on 21 July. The decision has been taken in an attempt to make the sport more ‘accessible’ to new supporters.

Apparently, following comprehensive market research, the ECB were presented with Power Point-style conclusions which suggested that one of the biggest hurdles faced by new supporters was what the marketers believe is cricket’s occasionally opaque terminology. Presumably this didn’t include words such as ‘bowled’ or caught’, though perhaps it did.

And so, words that have been used for a few centuries to describe the progress of, and stages within a game of cricket are to be amended on the basis of responses gleaned from focus groups in order to suit a new branch of the sport. Doubtless, the intention is to attract a brand new audience, most of whom will be encouraged to post details of ‘outs’ and ‘batters’ on their social media accounts.

A cricket batsman ready to bat on a cricket lawn

The England and Wales Cricket Board (ECB) intends replacing the words ‘wickets’ with ‘outs’ and ‘batsmen’ with ‘batters’ when the new Hundred competition starts on 21 July in an attempt to improve accessibility - Credit: Getty Images/iStockphoto

Why stop there? If cricket’s established nomenclature is being amended, why not weave some new rules into the game at the same time?

For example, if the ball hits the third post to the left of the man wearing the blue shirt in the west stand, then you’re out. Alternatively, making a one-handed catch could dismiss two batters. The list of change-for-change-sake rules is potentially endless.

Funnily enough, over the past 12 months, as readers have become more attuned to saving and investment, I have received plenty of correspondence relating to gilt-edged securities, commonly referred to as gilts. Most people bemoaned gilts’ negligible returns, but many others wondered why gilt-related terminology appeared so archaic and old-fashioned.

In keeping with a prevailing spirit of accessibility, therefore, it seems only right that we should address this matter.

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‘Gilt’ was not a term originally used to describe government borrowing. Indeed, it wasn’t until more than 150 years after King William III raised £1.2 million, via the newly-created Bank of England, with which to wage war against France in 1694, recognised as the first example of gilt-edged borrowing, that they became commonly known as gilts.

By the nineteenth century, the debt security certificates issued by the government had gilded edges, an appropriate decorative touch, for Britain is one of a tiny band of nations never to have defaulted on a debt.

While a gilt’s title may appear slightly more daunting than, say, ‘instant access account’, it does, in fact, provide a detailed description of what it offers: think of it as describing what it says on the tin.

For example, let’s assume you’re interested in a £100 nominal of Treasury 6 percent 2028. Such a product exists: it matures on 7 December 2028 and carries a ‘coupon’ (see below) of 6%.

The word ‘nominal’ refers to the gilt’s face value, also known as the ‘par’ value, which is the amount the government guarantees to repay the holder on the date the gilt matures. However, between now and the redemption date, the par value will fluctuate.

Let’s assume the par value is £100. Irrespective of how much it varies, that is the sum you’re guaranteed to get back should you hold the gilt until maturity.

Close up of a leather bound book with gilded edges

By the 19th century, debt security certificates issued by the government had gilded edges like you often see on books - Credit: Getty Images/iStockphoto

We can ignore the word ‘Treasury’ as it has no relevance to the gilt’s investment characteristics.

The percentage, 6.0%, is the gilt’s ‘coupon’, ie the annual rate of interest it pays. In this case, a £100 nominal would earn £6 a year, a truly cracking return in the current market. In practice, however, the return depends upon the price an investor pays for the gilt.

Buying a gilt at below par value would boost the rate of return, making it higher than the one quoted. In this instance, buying at £97 would give the investor a return of 6.18%. The opposite is also true: buy at above par and the return is lower.

Finally, 2028 is the redemption date, the point at which the nominal value is repaid to the gilt holder. It’s worth noting that some gilts are ‘double-dated’, for instance 2028-2032. This means the government has the option of redeeming the gilt at any time between the two dates, but no later than the second one.

It seems unlikely that the language of gilt-edged securities will become any more ‘accessible’ in the foreseeable future. After all, there seems little point in changing terminology that has served its purpose for over 300 years – an argument some folks might be keen to make to the ECB.


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Read Peter Sharkey’s blog exclusively at www.moneymapp.com/blog

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