Why do financial reporters insist on reporting interest rates on complex consumer financial products as if they were meaningful in isolation? To wit, an otherwise good New York Times story reports an increase in credit card interest rates over last year. That figures doubly meaningless. First, interest rates are but one component among many of the cost ofusng a credit card. This is akin to reporting that because A increased, therefore the sum of A+B+C+D+E increased. Unless we know that other factors held constant (fees of various sorts, etc) it doesn’t mean much to know what happened to interest rates. And second, interest rates only matter for revolvers (including sloppy payees). That’s the majority of card accounts, but it means interest rates just are so important as to be reported in isolation as significant. So tomy financial reporter friends, please stop repeating this logic fallacy.
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2 responses to “A Plea to Financial Reporters”
Even more ridiculous is the practice of reporting along the lines “increases in the Federal reserve rate, say by 0.5%, would significantly push up borrowing costs on home loans, car loans and credit cards”.
One can just about believe that an increase in base rates might lead to similar increases on home and car loans; but clearly, the premium that credit card users are charged over and above base rates means that even a substantial increase in the base rate from its current level is unlikely to directly lead to a material change in interest rates on credit card debt (e.g. 29% to 30%).
I don’t disagree with your observation. But my question is how would you put the interest rate in context with other fee info in a story with space constraints? What other data should’ve been included?
Thanks.