Financial literacy and business journalism

Felix Salmon of Reuters writes Thursday about the importance of financial literacy for business journalists.

Salmon writes, “But there’s a superficial exactness to numbers that doesn’t exist in words, and so people have a tendency to believe that all numbers are much more precise than in fact they are. If the Labor Department releases a report saying that payrolls rose by 148,000 in September, then a reporter who said that payrolls rose by 150,000 would be considered to have her facts wrong — even though the headline number is only accurate to within 100,000 people either way. The actual number of new jobs could easily be anywhere between 44,000 and 252,000 — and indeed there’s a 5% chance that it’s outside even that large range. But because everybody insists on one hard number, one hard number is what they get.

“One of the most important skills in financial journalism is numeracy — having a basic feel for numbers. In this case, the reporters covering the story got the numbers right: they should be applauded for that, rather than having brickbats thrown at them. After all, it’s not hard to find examples of reporters getting numbers very wrong. Consider this story, from the New York Post, under the headline ‘Verizon increases cell bills 7.1% for 95M customers’:

Verizon didn’t sign up as many new cell phone customers in the third quarter as Wall Street expected — but it still earned more than forecast as it managed to increase the average bill of its 95.2 million wireless customers by 7.1 percent.
The average Verizon Wireless bill jumped to $155.75 a month as of Sept. 30 from $154.63 last year, the company said Thursday.

“Now that is a math error — and evidence of deep innumeracy on the part of the journalist who wrote it, as well as a whole series of editors. If you want to work out exactly what the increase is, in percentage terms, of going from $154.63 to $155.75, then you might need a calculator. But if you were numerate, you would know intuitively that it’s very small, on the order of 1%, and that it’s nowhere near 7%. If you get a result of 7.1%, then that means you’ve pressed a wrong button somewhere, and you should do your sums again.”