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In 10 years time…

Posted by shartley13 on October 3, 2011

Discuss how inflationary pressures and increased interest rates will affect you in 10 years’ time

 

Increased interest rates, as an effect of inflationary pressures will have many effects on me in ten years’ time. In ten years’ time I will be twenty eight, and part of the labour force, earning an income. If interest rates were to increase in ten years’ time, I will have a greater incentive to save a greater proportion of my income, as I get more in return. This means that I will be spending less of my income.

In ten years’ time, I will probably have a house, which I will either be renting or buying. An increase in interest rates will be bad news regardless – if I own my house, I will have to pay more in servicing my mortgage; if I am renting, the landowners will pass on the increase in their mortgage servicing to me, in the form of increased rent. This increase in the cost of housing – whether through an increase in mortgage or increase in rent, will mean that a greater proportion of money will be spent on this area.

This will affect my lifestyle to different degrees; depending on my level of income. If I am a higher income earner, which I no doubt will be, this increase in interest rates will present fewer ramifications to my lifestyle. They will mean that I will have to cut out my luxury consumption and my travelling overseas will be limited to two trips, rather than three, as I have to spend that money on servicing debts. However, I guess, if I earn enough money, an increase in interest rates won’t affect me at all as I can buy a house outright and thus not have to have a mortgage.

However, if, in ten years, I am a lower income earner, the increase in interest rates will have larger impacts on my lifestyle. As a lower income earner, I will probably be borrowing more money, than if I had a higher income, to finance my day-to-day spending and, if I bought a house, a greater mortgage which has to serviced.  This means that a rise on my income will mean that I have more debts to service and a greater proportion of my income will be debt servicing. If I were a lower income earner, the money which I would be spending on entertainment goods will be utilised in my debt servicing. This means that I get a lower utility, with fewer of my wants being satisfied.

If I am lower income earner, an increase in interest rates may lead to me being in a ‘debt trap’ scenario. This means that to finance my debt servicing, I will take out another debt, whether through the form of a credit card or short term loan. This may lead to a debt cycle, which leads to multiple unsustainable loans being procured.

 

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In 10 years…

Posted by shartley13 on October 3, 2011

Discuss how inflationary pressures and increased interest rates will affect you in 10 years’ time

Increased interest rates whether it is now or in the future will have detrimental effects on young people such as myself in relation to purchasing a first home/taking out a mortgage. As the RBA tightens monetary policy through selling securities, it will have the effect of raising interest rates throughout domestic banks. As a result of this, taking out an initial loan will become more expensive and thus discourage me to take out a home loan. If however, I already had a mortgage, increased interest rates would raise the cost of interest on the loan and therefore leave me with less income to spend on other options. However, these high interest rates would encourage me to save and therefore give me a better return on my money. In this case, I would have additional spending money to invest in opportunities such as holidays and recreational activities.

Inflationary pressures in 10 years’ time would have a similar effect of interest rates in relation to causing me to have less disposable income. As the prices for household goods and services rises such as food, it would make me, and my family of 7, have less money to spend on this such as the cinemas. Consequently, my life would become more stressful and boring as there is more pressure to pay for goods and services and I would have less money to pay for this to entertain myself with.

-DL

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Inflationary pressures – now and in 10 years time

Posted by shartley13 on August 31, 2010

Inflationary pressures will mean that the price of everyday living will increase both now and in ten years time. If wages fail to rise with inflation then the real cost of living will increase causing a decrease in the standard of living. Interest rates rising will make money less available and more expensive, although this will not affect me in the short term as I have a limited need to borrow money, however in ten years’ time I may be looking to purchase a house and this would require a mortgage. Paying off a mortgage with a high interest rate is much more expensive and therefore may delay me purchasing a property.

-LR

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