APR deserves a much better explanation"
14 June 2004, The Financial Times, Londonlink
Sir: Your Notebook editor, Robert
Shrimsley suggests that the APR (annual
percentage rate) is "about as valuable to the average consumer as an Aramaic
aphorism". (June 9th 2004)
It is so sad that even the pre-eminent newspaper is party to the general
view amongst politicians and the media that such a simple concept is
complicated. The problem is not that the essential APR is difficult to
understand or confusing. It is just that it is badly explained - perhaps
deliberately by some. Whilst the APR is not beyond the scope of anyone with
"O" level maths I can't speak for more modern qualifications. But no weighty
"A" level calculus is required.
Sadly this country's great communicators and leaders of government and
business, many of whom are no doubt proficient in pithy proverbs in Aramaic
or Assyrian, are hopeless at elementary maths and moreover rather than
expressing shame are proud of it. On the other hand our scientists and
mathematicians are often appalling communicators. Academia, rather than
improving its communications skills and explaining the subject clearly is
happy to go along with this sorry state of affairs by describing the sums as
"so difficult to understand".
The APR is merely a measure. It accurately calculates and represents the
average annualised percentage cost of borrowing or rate of investment return
based on the numbers fed into it. Spurious inputs lead to spurious measures.
After all, a watered down beer can still be measured in pints. Don't knock
the APR if the inputs aren't clearly set out.
But of course Mr. Shrimsley was spot on when he suggests that accurate
consumer information does not dramatically affect behaviour as can be seen
from cigarette packet health warnings.
Warren Edwardes, ceo
Delphi Risk Management Limited
warren edwardes, ceo
delphi risk management ltd
3 hyde park steps
st. george's fields
london W2 2YQ, UK