Averages Are Just Average To The Average Person

It seems like every single day we are bombarded with graphs, charts, averages and statistics. We live in a world of daily data dumps, and attention grabbing headlines. Let’s face it – our job is to help people navigate the financial world to the betterment of their situation, but it can be challenging with so much data to digest. I think something that needs to be brought to light as we approach the end of cycles, or the beginning of cycles is statistics and averages. Every day we are told stats and figures from local housing statistics to interest rates, to consumer spending. However, most of these numbers we see are averages or some variation of them, whether it be mean, median, etc. The job of any publisher is to sell newspapers, or should I say in today’s world – generate clicks, so the juicier the numbers, the better shot they have. This though, can come at the expense of a true depiction of what is really going on. Let’s take one small example of something to illustrate a point: Over the weekend, Berkshire Hathaway had their earnings announcement for the second quarter. BRK, as the stock ticker goes is owned by none other than Warren Buffett – perhaps you have heard of him. In the quarter, Warren Buffett’s cash pile has grown to a staggering $147,000,000,000.00. That is 147 BILLION dollars of cash on hand. I am also sitting on some cash, let’s say around $50,000.00. So, we could say, that on average, me and Warren Buffett have $73,500,025,000.00 each. While statistically true, it certainly does not give a fair representation of where things are at. Now of course this is a blown up scenario to prove a point. Averages are derived from a lot of past data. The more data we have, the better the statistic. In the above example, if I added 10 people who had $0.00 cash on hand, it would still be manipulated, but would be getting a little closer to the truth. Obviously if we added up all of the people in the country, then the average would hold true to a real life scenario. When reading, or repeating a statistic, do you know the data that was used to build the statistic? Do you know if the information is accurate, or another example of what I quoted above? What time period does the info cover? I could put out a statistic that the average mortgage rate in Canada is 2.00%. If my report was derived from June 2021 to August 2021 data, I would be correct – even though it is misleading. Better yet – it wouldn’t matter to a current buyer looking to pay almost 7.00% in today’s rate environment!!! As we get closer to the end of the real estate cycle in Canada, be wary of using too many averages. Averages will incorporate and encompass data that could be old, outdated, or heavily manipulated to prove a point, or to generate clicks. The further back the data goes, the less accurate the statistic generate will be. This is always the case at the end of, or the beginning of any cycle ,whether it be real estate, stocks, interest rates, etc. Be extremely careful when basing a business plan, or your advice to clients on the statistics quoted in articles, the press, and industry publications. Averages mean nothing at the peak, or the trough of a cycle, and a lot of people can get hurt if the numbers are used incorrectly. As I like to say ” I know how dumb the average person is, and then I realized that 50% of them are even dumber than that”