Averages Can Mislead: Reading Money Claims With Care

An average is one of the most common numbers in money talk. Ads use it, sellers use it, and friends use it over dinner. It sounds solid and fair, and many times it is.

Yet misleading averages show up more often than people expect. One very large number can drag an average up. A long stretch of time can hide the bumpy months. And the people left out of a count can change the whole story. A few plain questions can bring the real picture back into view.

This guide shares general information about how averages work and what a reader might notice in a money claim. It is not advice or instructions, and it does not judge any offer or company. Every number here is made up to show the math. Go one step at a time, and try each idea on a claim you come across.

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Know how a simple average is figured

The most common average is called the mean. To find it, you add up all the numbers and then divide by how many numbers there are.

Here is a made-up example. Five friends spend $40, $45, $50, $55, and $60 on groceries in a week. Add them up and you get $250. Divide $250 by 5 people, and the average is $50.

In this case, the average fits the group well. Every friend spent close to $50. The trouble starts when the numbers are spread far apart, which is what the next few sections look at.

Write down five made-up numbers, add them, and divide by five to find their average.

Watch how one big number can pull the average up

An average treats every number the same, so one very large number can tug the whole result upward. A number that sits far away from the rest is sometimes called an outlier.

Picture five made-up people who try a side gig. They earn $100, $120, $150, $130, and $2,000 in a month. The total is $2,500. Divide by 5, and the average is $500. Yet four of the five earned $150 or less.

An ad could truthfully say “members earn an average of $500 a month” in this made-up case. A reader might notice that the claim says nothing about what most people earned. For related reading, see comparing side hustles by startup cost.

When you see an average in an ad, ask yourself whether one big number could be pulling it up.

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Look for the middle number, called the median

Another kind of average is the median. It is the middle number when you line all the numbers up from smallest to largest. Half of the numbers sit below it and half sit above it.

Let’s line up the same made-up side gig earnings. They go $100, $120, $130, $150, and $2,000. The middle one is $130. So the median is $130, while the mean is $500.

When the mean and the median are far apart, that gap is a clue. It often means a few large numbers are stretching the mean. Some claims share both numbers. When only one is shown, a reader might wonder what the other would say.

Line up a set of made-up numbers from smallest to largest and circle the one in the middle.

“One number can describe a crowd, but it rarely tells you about the person standing in it.”

Remember that an average hides the ups and downs

Two very different situations can have the same average. That is because an average squeezes everything into one number and leaves out the spread.

In a made-up example, one person spends $300 on household costs every month, steady as a clock. Another spends $100 one month and $500 the next. Both average $300 a month, since $100 plus $500 is $600, and $600 divided by 2 is $300.

For planning, those two people live very different lives. The second person needs room for the big months. A reader who sees an average might ask, “How much does this number swing from month to month?”

Look at two of your own months side by side and notice how far apart they are.

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Ask who was counted and who was left out

An average only covers the people or months that were counted. If some are left out, the result can look brighter than real life.

Here is a made-up example. Ten people try a money-saving program. Four stop early and save nothing. The six who stay save a total of $300 in a month, which is an average of $50 each. But if all ten people are counted, $300 divided by 10 is $30 each.

Both numbers come from the same group. The $50 figure only counts the people who stayed. A reader might notice words like “active members” or “customers who finished” and wonder how many others tried and are not in the count.

Next time you see an average in a claim, write down one question about who was counted.

Be careful with averages of ups and downs in percents

Averaging percents can give a surprising answer. A gain and a loss of the same percent do not cancel out in dollars.

In a made-up example, $1,000 grows by 50 percent and becomes $1,500. After that, it falls by 50 percent. Half of $1,500 is $750, so it drops to $750. The simple average of plus 50 and minus 50 is zero, yet the money went from $1,000 to $750.

This is plain math, and it says nothing about any real investment. It shows why an “average return” can leave out what actually happened along the way. You may also like investment myths that could be holding you back.

Try the 50 percent up, 50 percent down example with your own made-up starting amount.

Use your own averages to understand your spending

Averages can also be friendly tools. Your own past spending can show a typical month, as long as you keep the swings in mind.

Here is a made-up example. Over three months, a person spends $380, $420, and $520 on food. The total is $1,320. Divide by 3, and the average is $440. But one month was $520, which is $80 above that average.

Some people plan around the average and add a small cushion for the higher months. Others plan around the highest month. Either choice is yours, and seeing the real numbers makes the choice clearer. Another place to look is reasons people track every expense.

Add up three months of one spending category and divide by three to find your own average.

Notice the time frame behind the number

An average always covers some stretch of time. The stretch someone picks can change the number a lot.

In a made-up example, a small shop earns $200 in its first month, $300 in its second, and $1,000 in a busy holiday month. Over those three months, the total is $1,500, and the average is $500 a month. Without the holiday month, the average of the first two months is $250.

Neither number is false. They just cover different months. When a claim says “averages $500 a month,” a reader might ask, “Over which months, and were any of them unusual?”

Write down one average you hear this week and ask what stretch of time it covers.

Keep a short list of calm questions for any average

A few questions can turn a shiny number into a clear one. Is this the mean or the median? Who was counted, and who was not? What time frame does it cover? How much do the numbers swing?

These questions are not about doubting everyone. Many averages are shared honestly and are useful. The questions simply help you see what the number can and cannot tell you. For related reading, see earning extra money without buying a course.

If a claim feels pushy or confusing, you can take your time. A trusted friend, a librarian, or a consumer protection office can help you think a claim through. There is rarely a reason to decide on the spot.

Copy the four questions onto a sticky note and keep it near where you shop or read offers.

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