Bailout

Adventures in financial literacy, Mint.com edition

By Felix Salmon

Aaron Patzer, the founder of Mint.com is pretty economically illiterate, so maybe it’s not so surprising that his site is running the headline “What Inflation? Products That Cost Less Today Than in 2000″ over a chart of things which cost more today than in 2000. If there was a prize for the most incoherent piece of consumer financial journalism, Ross Crooks would surely be a finalist for this:

Not all prices have increased over the past ten years. As WalletPop.com recently found, certain items or services are actually cheaper today compared with their 2000 price adjusted for inflation through 2010.

Yes, Mint.com really is comparing 2010 prices to 2000 prices after adjusting the 2000 prices for inflation, and finding that some prices have gone down. Which of course is true by definition, since inflation is the average rate at which prices have been rising, and some items will rise in price more slowly than others.

WalletPop itself does a slightly better job of presenting its data: at least it shows, in a table, the handful of items which have fallen in price in nominal terms. (Hummel figurines, Martini and Rossi Asti Spumante, and 100 Bayer aspirin, you win!) But the illustration the two sites collaborated on is pretty bad. Not only do they adjust the 2000 prices for inflation, which largely defeats the purpose of the exercise, but they also exaggerate the difference in real price by measuring on one dimension and illustrating on two. For instance, here’s how they show how the price of CDs has fallen from $14.04 to $13.02, a drop of just over 7%:

Is it interesting that the price of CDs has fallen by 27% in real terms? Maybe. I don’t know. But if you compare the size of the green 2000 CD and compare it to the size of the brown 2010 CD, you’ll see that visually the decrease in size is not 27% but 47%.

In other words, to illustrate a price drop of 7% over 10 years, Mint and WalletPop first exaggerate the fall by putting it in real terms and making it 27%, and then they exaggerate it again by illustrating it with a CD which is 47% smaller than the one representing the price 10 years ago. And these are sites which are supposed to help in the quest for improving financial literacy. Sad.

Full post as published by Macroprudential on July 01, 2010 (boomark / email).