Making Sense of Financial News
See also: Understanding InflationReading the financial news or ‘money pages’ is often advised as a way to improve your understanding of financial issues, and therefore your financial literacy. However, reading financial news can be a daunting task for two main reasons. First, what does it actually mean? Second, there is a huge amount of information available, so how do you choose what to read?
There is also the question of what action you should take after reading. Should your reading affect your investments, or your attitude to your bank? This page provides some useful tips and ideas to help you make the most of your reading time—and get the best value from your financial reading.
Understanding the Financial News
You have already taken your first step towards understanding the financial news: you are reading this page, and looking at this section of the site!
Broadening Your Financial Knowledge
There are several pages on SkillsYouNeed that can help you to broaden your financial knowledge and understanding. A very good place to start for definitions of specific terms is our Money Management and Financial Glossary.
If you want specific information about other aspects of money management or financial literacy, there are links from the glossary, or from the main Money Management and Financial Skills page.
Your next step is to start to apply your knowledge to help you interpret what you read.
Critical Reading and Financial News
It is essential to apply the principles of critical reading to financial news
Critical reading means engaging with the text, to understand more about the writer’s thinking and motivation. It is a crucial part of evaluating any text.
It is helpful when reading financial information to consider three important questions:
What is the writer’s purpose in writing this?
This question is perhaps the most fundamental when reading any text, because it affects the style and content of the writing.
For example, journalists want (need) to sell advertising space in their newspaper or on their website. This means that they need your attention—and then they need to hold it, at least for a while. They also want to be the first with any news story, and to provide content to deadlines. This does not necessarily lend itself to careful, nuanced writing, or indeed, fact-checking.
TOP TIP! Be alert to possible bias
One issue to consider is possible bias in the writing: where the writer highlights a particular point of view to the exclusion of others. This is often, but not always, for political reasons—or perhaps it would be fairer to say that political views may cause bias.
Look out for writers who seem to be leading you towards a particular opinion without any obvious cause, and keep asking yourself why this is happening.
Considering the writer’s motivation can help you to understand more about why they might have expressed a particular opinion or included particular information.
Is this based on data or opinion?
Consider whether the writer has included any evidence to support assertions (for example, statistics, or links to references). Articles based on data are more likely to be reliable. It is of course possible to select data to prove almost anything. However, an article with no data is not even trying to prove something to you.
TOP TIP! Check the source if possible
Where a writer has included a source, it is worth having a look, especially for statistics. Original sources almost always give a more nuanced view than the summary provided by a writer trying to make a point.
It is interesting to read opinion pieces, as long as you recognise that is what you are reading. Opinions disguised as facts are more dangerous.
Is this about the past or the future?
Opinion is divided about which is ‘best’ in financial news.
Articles about the past are more likely to be factual and provide you with information about things that have actually happened. By reading them, you are informing yourself about the world. However, we know that the past does not guide the future in financial affairs. Just because the stock market fell today does not mean it will fall again tomorrow. Old news is very definitely old news.
Today’s newspapers wrap tomorrow’s fish and chips
Old saying, highlighting the ephemeral nature of any news storyOn the other hand, articles about the future are, by their nature, the writer’s opinion. Forecasts of the future, including in finance, are notoriously inaccurate. Nobody has yet invented a crystal ball that actually works.
If you doubt this, try Googling something like ‘predictions for 2020’, and see which of those ideas came true.
Top Tips for Improving Your Reading of Financial News
The good news is that you can take action to improve your reading of financial news.
Following these tips will help you to become more financially literate.
1. Understand the consensus
It is important to understand where there is a consensus on particular issues—and also to try to understand why that exists.
You cannot develop any kind of critical view without understanding the ‘conventional wisdom’. Once you have grasped the consensus, you can start to challenge it and the ideas behind it using your own knowledge and experience.
2. Seek out different opinions in your reading
We are all prone to confirmation bias: seeking out information that supports our own opinions and ideas.
However, financial experts suggest that it is far more important to seek out information that opposes or disproves your theory. This helps you to understand both sides of the argument and ensures that you have a more balanced view.
In other words, whenever you read an opinion piece—and especially if it confirms your own views—go looking for another article that takes the opposite stance. You may even find that you change your mind.
3. Read a mixture of different sources and authors
Different writers and sources have different motivations. It is therefore a good idea to read a mixture of authors and sources.
For example, mix mainstream and social media, or traditional media such as newspapers with bloggers, forums or online commentary. This will give you different perspectives on the same news. It may even highlight different stories. It may also surface stories or ideas that you had not previously considered.
TOP TIP! Use your social media feed to broaden your exposure to ideas
If you use social media, Twitter is a very good way to expose yourself to a wide range of ideas. Identify and follow people with very diverse opinions on different topics, especially those who disagree with each other.
A Final Thought
Not everything you read needs to be acted upon, even if you are actively managing your own investments.
Indeed, most of it probably should not lead you to take any action at all. Why?
Because most of what is published is not accurate, detailed or timely enough to make any difference. If you can read it, millions of other people can also read it. It is too late to give you any advantage—which means that acting upon it is unlikely to help you make better investments—at least, not in specific terms.
Instead, you should see reading financial news as a way to broaden your understanding of the financial ‘big picture’.
As a result of understanding that ‘big picture’, you might then decide to take some investment action. For example, if the stock market is low, you might decide that this is a good time to invest, because you will get more for your money. However, this should be driven by your broader understanding, not by a single article in the financial press.