Credit Scores and Climate Change

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I came across this article about a week ago, and thought it was worth looking at a little more deeply, as from the first sentence on it makes a lot of interesting assumptions. Add into the mix politics and controversial contemporary issues, and what’s not to love?

To what extent does financial savvy reflect political prognostication capabilities? And what does the sophistication of a given candidate’s supporters indicate about that person’s appeal, odds of winning the White House and ultimate ability to lead the country?

It will be important to note the terms “financial savvy” and “sophistication” as we proceed.

Every four years, the pulse of the nation is taken via presidential election – a process that serves as a referendum on certain personalities, policies and social trends. And while the bulk of the attention is rightfully paid to the candidates themselves, there remains a great deal that we can learn about the very voters supporting them and thus each candidate’s message.

I would actually be inclined to agree with this, and I think far too many people often misunderstand X or Y candidate’s appeal because they do not realize that politics is- especially in a system wherein the populace votes- largely a marketing campaign. Successful candidates have to be able to craft their messaging to, as I like to say, “be able to whip up a larger mob more than the other guy.”

Thus, it is always important to remember that when you think the candidate you oppose seems to be saying crazy, obviously stupid things, they are likely largely doing so because they have (if their campaign has done its job) zeroed in on their market and are both saying things and saying those things in a way that is most likely to engage their target audience; that is, to sell themselves as a candidate. Given the axiom that there is no such thing as bad marketing, political candidates are often well-advised to be as polarizing and controversial as they can be, in order to keep themselves in spotlight and give the media something to constantly talk about, because, as Bono said when Apple forced all of its iTunes users to download one of U2’s new albums:

“We got a lot of people who were uninterested in U2 to be mad with U2. And I would call that an improvement in the relationship.”

But all of that is largely as aside. The real fun begins in the following sentence:

One issue in particular, personal finance, encapsulates the economic struggles endured by much of the populous in recent years and can, in turn, be condensed into an easily digestible three-digit number known as a credit score.

In case you missed it, there is a huge assumption built into this entire article which rears its ugly head here, the notion that personal finance can be condensed into a 3 digit number. It is, of course, also delightful that this is said without any apparent irony when in the previous paragraph the focus was squarely upon “financial savvy” and “sophistication.”

Indeed, the best thing about being cynical is that the internet often gives you so many gifts!

Naturally, it bears noting that, no, personal finance cannot be reduced to a three-digit number of a credit score, precisely because a credit score is only indicative of certain aspects of personal finance, namely one’s ongoing interaction with debt and debt products. To posit this as a condensed and easily digestible proxy for personal finance is simply misguided and simplistic (see the above noted irony!).

As an analogy, imagine taking a metal detector to a beach. As you comb the beach for buried treasure, you end up finding various metal objects buried in the sand. Now imagine that in describing the beach to someone, you described it in terms of only what the metal detector was able to find. Would this easily digestible and condensed version of what beaches are like be an exhaustive or even accurate indication of what any beach is like? Would you use that description as a proxy for planning a trip to a beach, reporting which beaches are best or most popular, etc.?

In a similar way, a credit score is only able to give information about specific aspects of personal finance and, given the algorithms used, can only give specific information and “scores” insofar as any particular person’s debt utilization interacts with those algorithms. At best a credit score can tell you how well a person’s debt utilization aligns with the predetermined ranges of the algorithms, and the score which is spit out is used as a proxy for that interaction.

For example, the FICO score is based on the following:

35% for payment history
30% for amount owed
15% for credit history
10% for credit mix

It will be noticed that none of these inputs takes into account one’s income, net worth, savings, etc. Rather, the credit score is only an indication that one has interacted with debt in certain ways over a certain period of time that can be measured according to the established parameters.

Now, this may have some utility for debt sellers when it comes to finding customers to whom to sell future debt products, but in and of itself it certainly cannot give a condensed (let alone complete) summation of one’s personal finance nor financial health, savvy or sophistication.

After all, if one never interacts with debt, one will have a non-existent credit score. But this non-interaction does not logically have any bearing upon one’s financial savvy or sophistication; it could be that one has lots of money and is in extremely good shape as far as personal finance goes precisely because of not having a credit score.

And even having a low or dropping credit score is not necessarily indicative of financial distress or lack of financial health. As an example, my wife and I at present have what would be considered “excellent” credit scores, because we had a $100,000+ mortgage that we always paid on time, was well within the “healthy” parameters of available credit utilization, and because in the past we have paid off other types of loans (student loans) and not opened any new credit lines while having this substantial debt.

But now that our house is paid off and the credit utilization is effectively 0%, our credit score has begun to drop. In about 4 or 5 months it will likely pass from excellent to fair and perhaps even to poor. Within about a year it will become non-existent.

During the next year as our credit score drops, does that entail that we have suddenly begun to become less financially savvy or sophisticated? We are able to save and invest more money, and we now have zero liabilities as far as debt is concerned. Yet, according to this article, during the next year one could easily condense our personal finances into a three digit number, which is going to drop like a rock.

Thus, it is easy to see why this notion of the credit score as an indication of personal finance is such a huge misnomer, and articles like these too readily homogenize what varies widely from situation to situation and person to person into a catch-all that quite possibly indicates much less than it is purported to.

In this nationally representative survey, we asked people who they plan to vote for, what their credit score is and even how they stand on controversial issues such as climate change, which have also loomed large this campaign season.

As with any surveys, it’s crucial to know the specifics about the methodology of the survey, of which WalletHub unfortunately isn’t exactly forthcoming. They state:

We conducted this survey between March 9 and March 13, 2016, using a nationally representative online panel of 765 participants. After all responses were collected, we normalized the data so the panel would reflect U.S. demographics.

There are some likely problems here. Firstly, we don’t know (from this) if the survey was conducted among its own members or not. We also don’t know if the credit scores are self-reported by those taking part in the survey or collected from users of WalletHub. Either way there would seem to be a fair amount of potential self-selection bias involved. After all, if the credit scores are collected from its members, then those members are already people who are interested in their credit score, enough to engage a credit-monitoring agency. If the scores are self-reported from non-members, one has no knowledge of the veracity of the scores; responders might fudge their scores up, guess at what they are, etc.

Further problematic is the extremely low sample size. If all six of the listed candidates had responders evenly split amongst them (which likely isn’t the case), that would mean that around 128 people per candidate is intended to be representative of millions for each candidate. The “normalization” is also problematic because it essentially creates data that doesn’t exist, further removing this survey from reality.

I have read articles about this survey on various sites, and it is consistently amusing to see how many try to spin this in a political manner, as if X credit score is more indicative of Y or Z, or how a low credit score among X’s supporters is explained by Y or Z.

The reality, however, is that there is almost no useful information to be gleaned from this survey at all, except perhaps for how well debt sellers have succeeded in making the credit score the de facto measure of financial savvy, health, sophistication, etc. Only by doing so would this sort of information be of any interest whatsoever or provoke so much bluster in comboxes. Rather, if the credit score was seen for the limited measure of personal finance that it is, the best this sort of information could present would be a yawn.

But what follows is perhaps even more chuckle-inducing, although I think it is instructive insofar as it relates to dialogue about controversial issues. The 765 respondents were asked about whether or not they believed in “climate change,” and the results are far more diverse than those for credit scores.

It is probably soapbox time. Without knowing the exact wording of the question, to ask survey respondents if they “believe in climate change” is simply not a useful question. In fact, what it ends up doing is giving you more information about what the respondent thinks the interlocutor’s motives are than information on that the respondents really think.

As an example, if I were to be asked if I “believe climate change is real,” my first follow up question would be “what do you mean by “climate change?”” Now, this may seem a blatant attempt at equivocation, but in reality the question is so poorly worded and the field of inquiry in question so fraught with lack of precision that the question as stated is not one I could answer in good conscience without further information.

For starters, I do not believe that “climate change” is a very useful bit of terminology. It is overly broad, can easily misrepresent reality (in that “climate” is a placeholder for “changes in weather over time,” rather than some reified entity) and can encompass changes of presumably any kind.

Secondly, the question as stated seems potentially a bit of a bait and switch, as the question isn’t really necessarily about whether climate is changing or not, but rather about the cause thereof.

The reality of earth’s “climate” is that it is always changing and has always been changing. Thus, as a potential respondent to this question I could honestly respond with a yes, since it is (I would argue) a rather obvious feature of “climate” and earth’s weather system.

But if obvious answers to obvious questions were the point, it wouldn’t be posited as a controversial issue in the presidential race. Instead, the rub of the question comes down to “do you believe that human activity is responsible for climate change?”

This, I would argue, is the actual intent of the question, and thus should at the very least be framed in this way. However, even framed in this way there is a tremendous amount of ambiguity.

Firstly, that humans have some impact on earth’s weather system is- to my mind- another question with an obvious “yes”, as anything within earth’s system has some impact on it.

Secondly, one would need to further define “climate change” in this restated form. After all, if I am proceeding with the assumption that “climate” is always changing as part and parcel of earth’s weather system, then the question becomes about how much human activity has contributed to what might be termed “abnormal climate change” over above what might be termed “natural climate change.”

And while this might seem tendentious, even within this more limited scope there are further questions to be teased out. What, exactly, are we defining as “abnormal climate change?” Does that include every piece of inclement weather, or is it more closely defined by something like “global warming?” And perhaps most importantly- do we have certainty that we can even know what “abnormal climate change” might be over against “normal climate change?” It seems to me that to know what “normal climate change” is, one would need a fairly robust picture of earth’s “climate” history (which we do not have) or at the very least specific predictions from climate models which turn out to have robust veracity which actually occurs (which we also do not have). One might also ask if the current set of measurements we have for “climate” are actually giving us a thorough picture of what drives “climate change,” or if possibly we are describing a beach by means of what a metal detector can discover.

A further question about human activity is precisely which human activity is purportedly responsible for “climate change,” and then further what means we have of actually determining this or verifying the veracity of the claim.

At any rate, it should hopefully be clear that there are number of reasons for any number of responses for a seemingly simple question, which in the end makes it a fairly meaningless question. Let’s run through some scenarios for someone who might be considered a “climate skeptic” and the potential rationales for those responses:

YES

Yes, climate has always been changing, and thus I believe in climate change.

Yes, climate has always been changing and since humans are part of earth’s system, they obviously have some impact.

Yes, I believe in climate change, but I don’t think that CO2 emissions are the main driver of humanity’s impact on climate.

NO

No, for while I believe that climate has always been changing, I think the question is meant to ask if I think humans drive climate change.

No, human activity cannot possibly impact climate to the extent purported.

No, for while I believe that climate change is occurring, I believe it to be a largely natural phenomenon.

These are only a few scenarios in which someone could honestly answer the same question in dramatically different ways depending on how they interpret the question, which, as aforementioned, makes it largely a useless question.

It also highlights how civic discourse often fails because most people are unwilling to use precise language in describing things, especially in controversial subjects when it is needed the most. Unfortunately, truth suffers the most, for phrases like “climate change” cease to describe anything meaningful and more often than not come to be employed as shibboleths or rhetorical cudgels.

After all, in my example, to my mind it is obvious that climate change always has and always does occur. For me to take on the surface a “NO” response to “do you believe in climate change” would immediately paint the responder as a moron who won’t acknowledge the obvious. Of course, this is only true if I am unwilling to notice that that the “NO” response could have very meaningful rationales underlying it which are not apparent within the question or my interpretation of the response.

I thus find it amusing that the responses to this question are then paired with credit scores and support of a particular candidate. As should be apparent, we have condensed information from an exceedingly small and likely self-selected sample that only touches on one aspect of personal finance mashed up with responses to a largely useless question which are likely more indicative of the responders interpretation of a question than opinion.

And this tells us what?

Maybe just that online surveys tell us nothing. Which is something, I guess.

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Jason Watson

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