Is buying bird seed for the birds?
Last week NPR’s Planet Money podcast had an interesting piece about how credit card companies judge your ability to pay (whether or not you’re a credit risk) based on what you’re actually buying. The show noted that a Canadian retailer called Canadian Tire released several examples.
Canadian Tire, as the Planet Money hosts noted, is a Canadian retailer like Wal-Mart. It doesn’t just sell tires, as the name implies. Canadian Tire sells everything from tires to DVD players. It’s kind of Home Depot meets Wal-Mart. Of course, the Planet Money hosts, not being Canadian, got the Wal-Mart analogy slightly wrong in the same way calling The Vatican a “wedding chapel” would be an analogy that fails to fully capture what it represents. Canadian Tire is not just a retailer. In Canada, it’s pretty much the state religion.
Anyway, I digress. The show gave several examples of links between purchasing habits and credit risk. People who buy a brand of premium bird seed at Canadian Tire were found to be very good credit risks. They rarely miss a payment. On the other hand, people who buy chrome car accessories, notably of the skull variety, tend to be very poor credit risks. Statistically they have higher default rates and missed payment rates. One bar in Montreal was also centered out as a hive of scum and payment defaulting villainy.
The explanation given for why people who buy premium bird seed reliably pay off their debts was explained that anyone who feeds random animals probably has a strong sense of their duty to others. “Others’ also includes the lonely credit card company.
Planet Money also investigated the dead beat bar (called “Sharx”) to determine why it was such a locus for poor credit risks. They expected a very run down dive, full of bikers, blood on the floor, etc. If you ever tried to drink underage, you’re fully acquainted with the kind of place. Planet Money was, however, surprised to find a reasonably upscale establishment. You can check it out yourself. No blood. Planet Money concluded it was probably just a prime hang out for young upwardly mobile urban hipsters whose pay packets have not yet caught up with their lifestyle aspirations. You know, the kind that has an iTouch, the latest Blackberry, an Austin Mini or a Smart car, takes a yearly trip to Mexico, snowboards, but finances it via credit cards and the magic of making minimum payments, balance transfers, and card companies that simply increase your limit when you reach your limit.
No explanation was given why people who buy chrome skulls to boss up their ride tend to miss more payments but we were left to reach our own conclusions. They’re probably not good people, right?
Okay, a pretty entertaining piece but part of it had all the hallmarks of what Russ Robert of EconTalk likes to call “ex-post storytelling”. For example, people who buy bird seed are more socially conscious and this also includes paying up their debts. Sounds good. However, one might also consider such people are home owners, have nice backyards in upper middle classed suburban neighborhoods, and can generally at least make a $75 minimum payment on a credit card. Basically, my father. I’m not aware of many apartment or condo dwellers who are keen to attract more birds to their balconies, even if they have money coming out of their whazoo. A postal code might well be as good a predictor as bird seed. The report made no mention of whether or not products you purchase offer better predictive power than traditional scoring methods. Like, if you live in a poorer neighborhood, rent a small bungalow, but buy premium bird seed, are you a better credit risk than your neighbor?
Why Sharx bar popped out of the data reminded me of those puff pieces you read in the paper about an insurance company that matches astrology sun signs with insurance claims and reports that, say, Capricans… errr Capricorns are the worst drivers. The problem with these simple correlations is simple variation means some sun sign will come up the worst and some sign will come up the best. The way to run such a study is randomly divide the data pool into two. Find your correlation on the first half and then see if it is a good predictor of claims when run on the second half. Nothing in the Planet Money report indicated the methodology used by Canadian Tire.
– Karl Mamer
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