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Another Case of Misleading Statistics

This article was written by in Debt Reduction. 8 comments.


Everybody Lies. That’s the mantra from House, a simple but entertaining television show, whose premises are strangely applicable to personal finance. Recently, Liz Pulliam Weston evaluated a survey about consumer credit card debt that used a mistaken assumption to create misleading data about average household debt.

When a survey says 90% of Americans are either liars or in denial about how much they owe on credit cards, you can bet it’s the surveyors who are the delusional ones. In June, CreditCards.com released a GfK Roper poll that purported to detail Americans’ relationships with credit cards. The survey contained plenty of interesting tidbits, but the poll takers went aground when they tried asking how the respondents’ credit card debts compared to the national average.

deviationThe survey started with the assumption that the average household owes $9,300. The surveyors then proceeded to ask respondents if they had less than $9,300 in credit card debt. When the good majority responded that they do in fact have less than that amount, the survey concluded that Americans are in denial or simply lying.

The problem is the $9,300 figure comes from a faulty or misunderstood study from CardWeb.com, which among other things, considers businesses in their end-of-the-year credit tally.

Well, for one, it’s irritating seeing a lie quoted in so many news stories, speeches and blog entries about credit card debt. Our national discussions about consumer indebtedness and bankruptcy are being distorted by the idea that we’re waddling around with four- and five-figure credit card debts.

The myth also gives false comfort to folks who think they’re “average” for having credit card debt, when they’re actually charging down the road to financial ruin. (Those folks are also the ones I’ll hear from after this column is published, by the way. Their arguments usually boil down to “I have credit card debt, so the myth must be true.”)

But mostly, the myth reflects badly on Americans. Most of us tell the truth, most of us aren’t in denial, and most of us aren’t nearly as stupid as some pollsters would like to think.

Liz also writes about how an “average” (mean) figure in populations with a high standard deviation can be relatively meaningless. If three three-year-old cousins spend the afternoon with their 85-year-old grandpa, you could say the average age of the four individuals is 23.5, but the number 23.5 is not representative of the four individuals in any way that’s relevant. It might be better to take Grandpa out of the calculation and focus on the average age of the children. Similarly, the CardWeb statistics include the year-end balances for those who pay their bill off every month. These are individuals who don’t carry credit, so they should not be included in the sample.

It’s very easy to simply trust numbers that are published in conjunction with a survey or scientific study, but that easily leads to misunderstandings. Misinformation can be distributed as easily as information throughout the world and applied to other data, as CreditCards.com did with this particular survey.

Now, here’s a question. Should people who play the 0% APR arbitrage game be included in statistics for credit card debt? They do hold the debt, but the debt was not obtained from a normal consumer action, like purchasing goods or services.

Photo: dan taylor
MSN

Updated February 7, 2012 and originally published July 31, 2007. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 8 comments… read them below or add one }

avatar J at IHB and HFF

Hello. I have seen only 0% balance-transfer offers, and most people’s balances are for past purchases of goods and services. How do people do the credit-card arbitrage without buying anything? Are there any 0% offers on cash advances? Do arbitragers pay the typically hefty price to incur a cash advance and then transfer to another card? Thank you.

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avatar Luke Landes ♦127,455 (Platinum)

J: When you do a balance transfer, you tell the new credit card how much to pay the old credit card. Say the old credit card doesn’t have a balance. The new card pays a check (or ACH) to the old credit card creating a credit balance (money owed to you) on the old credit card.

The individual then requests a refund check for the credit balance.

That’s how 0% balance transfer arbitrage works. You end up with the cash. It’s basically a cash advance, but not executed as such, which is why some credit cards won’t allow you to request refund checks for credit balances.

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avatar Modern Worker

76% of all statistics are made up anyways… :-p

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avatar J at IHB and HFF

I knew the arbitrage exploited teaser rates but I did not know that it involved fraud. Thank you.

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avatar Luke Landes ♦127,455 (Platinum)

Where does fraud come into play? There is nothing fraudulent about balance transfer offers or the participation in such offers. The credit cards don’t care if your balance transfer check pays off an actual balance. If they were concerned, they would verify the balance before sending the check. Some cards are concerned about supplying checks back to the customer for credit balances, as I’ve discovered, so as not to appear involved in illegal money laundering, but there’s nothing illegal about balance transfer arbitrage.

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avatar J at IHB and HFF

Hello. I was thinking of your example where there is no balance to transfer.

I am assuming that a “balance transfer” is supposed to pay for a balance, like a “home mortgage” is supposed to pay for home.

In both cases, a bank is paying a stated value of the balance/home (stated by the applicant).

Does anyone arbitrage with accurately-stated balances? If so, how do the costs of generating the initial balance affect the ROI?

Thank you.

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avatar The Happy Rock

Statistics are often misused and misquoted. I like nay discussion that helps up to practice thinking critically about any statistics.

I do agree that $9,300 could be misleading. If a few ‘rich’ people carry 200k in credit card debt the average could be skewed much higher than normal person’s debt. Sometimes the median helps give us some perspective on that type of skewing.

Nice discussion.

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avatar equipmentleasing

I personally don’t trust surveys unless they were done with lie detectors (im not even sure of that). Who will validate them anyway? It’s a matter of believe it or not really.

Besides, if not all most don’t want to tell how bad their credit is.

The 0% balance transfer info is new to me.. thanks for sharing!

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