Any statistician will tell you that number’s don’t lie. What most fail to mention is that while numbers don’t lie, the people reporting them often do. I was lucky enough to take a statistics class in college with a professor who kept it real. “[Numbers] can be manipulated,” he said, “by people who want to … advance their cause.” Sometimes these numbers can be manipulated so well that most people won’t catch the deception. More often than not, however, you just need to think logically about what you are reading, how the numbers are being presented and if they really make sense when you put them all together. If something seems to be askew, or missing, there’s a darn good chance that you’re reading numbers that have been manipulated.
A few days ago I was reading a blog post on a major banking site which was reporting recent data from an Equifax credit trends report. This particular post stated that “banks handed out 1.8 million more credit cards this year through the end of March versus the same period in 2010.” Sounds great right? After all an increasing amount of credit being extended would generally be considered as a sign of a growing economy.
As I continued to read I found this statement: “And in a sign of renewed confidence in riskier borrowers, 2.5 million of those cards went to subprime consumers…”
The blog then briefly mentioned how much credit was being extended (in dollars, e.g. credit limits) this year compared to last (higher again) and then finally posed a rhetorical question: “So why are most gatekeepers of credit rewarding consumers [by extending more credit offers]?”
Their answer? Because we (consumers as a whole) have better financial behavior now. In other words, we are less risky than we were in the same period a year ago.
This may be partially true, but it isn’t the whole story.
The post ended with more numbers that seem to back up the statement that consumers have better financial behavior now than they did last year. “Consumers continue to make payments on time, control spending and dig out of the debt ditch. (Equifax noted that consumer debt has fallen 8.7 percent to $11.3 trillion from $12.4 trillion in October 2008.)”
By the end of the post I’d read 10 different statistics, all relating to the amount of credit extended and consumer risk and behaviors.
What was the point of the article? The key takeaway? The one thing they wanted you to remember? The article emphasized that our better financial behavior has led to more credit offers from lending institutions.
Now stop and think about that for a minute.
Something just isn’t adding up.
Number’s Don’t Have Agendas. People Do.
Let’s review the facts:
- 1.8 million more credit cards were handed out in the 1st quarter of 2011 than in the 1st quarter of 2010
- 2.5 million more credit cards were issued to “subprime” borrowers in this same time period
- More credit was extended in this same time period
- Consumers as a whole are less risky now than they were a year ago
Let me point out the elephant in the room: everyone has an agenda1.
Here you have a major banking site that wants to sell an idea to you. They are trying to convince you that more credit is being given out now, in 2011, than was last year. That’s fine. They’ve got numbers to back this up. They’re also trying to sell the idea that consumers, as a whole, have better financial behavior now than they did last year (also backed up with data), and as a result of this banks are more willing to extend credit to consumers. In other words, everything is honky dory. We’ll all be holding hands and singing “Kumbaya” before the days’ end.
Is this really true though? Is the reason more credit is being extended because we’ve all reduced our risk and increased our credit scores? Maybe for some loan types but not for credit cards. Recall that 2.5 million more credit cards were issued to “subprime” borrowers. But only 1.8 million more cards were issued in total. So in reality it seems that while more credit cards were issued, less were actually issued to prime borrowers (or those with good financial behavior). Seven hundred thousand less.
1 Not every agenda is for purely selfish reasons. My agenda is to fight financial ignorance. If I end up making a few bucks in the process so be it, but I’d do this for free.