Adventures in financial literacy, Mint.com edition

By Felix Salmon
July 1, 2010
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:

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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%:

mint.tiff

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.

Comments
4 comments so far

Wouldnt ti be more interesting ot measure inflation of prices vs. wages? Instead of inflation of prices, compare to (various forms of) wage inflation. After all, I dont so much care that CD’s cost 7% less, I care about fraction of income.

Of course some sort of adjustments have to be made (hedonic or otherwise): things get better, or at least change.

Posted by Brennan | Report as abusive

I think it’s fairly useful to compare real prices in products. Actually, in most situtaions it’s actually more helpful when you inflation control prices. You get a feel for the changing distribution of spending, and a better model of how production improvements, subsidies, or taxes have altered the cost of some goods.

But, of course, Mint.com has reached a new height of idiocy by attempting to put this information under the headline “What Inflation?” Had they led with, “What Expensive Stuff?” it might have been remotely useful.

Posted by strawman | Report as abusive

reminds me of your reporting on Abacus and the infamous David Mamet flashback quote.

Posted by TinyOne | Report as abusive

Prof. Mark Perry at the “Carpe Diem” econo-blog has some good posts on the topic – he looks at things like number of U.S. labor hours required to purchase semi-equivalent items over large time frames, or the percentage of income spent on food, clothing and housing over time.

His very interesting point, obvious once pointed out, is that while many (including me) complain about stagnant wages, declining middle class, etc., we fail to remember that lower income folks this country today have luxuries that the rich didn’t have just a generation or two ago. That doesn’t mean that growing income disparities are a good thing, but does remind that a rising tide floats most boats.

http://mjperry.blogspot.com/2010/06/good -old-days-are-now_22.html

http://mjperry.blogspot.com/2010/06/good -old-days-are-now.html

http://mjperry.blogspot.com/2009/11/good -old-day-are-now-its-getting-better.html

Posted by SteveHamlin | Report as abusive
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