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Friday, March 27, 2015

Interest rates and their history

Interest rates differ between countries, but are used by central banks to impact economic activity. When employment and inflation are high, raising interest rates helps limit the supply of money and acts as a brake to control overheated economic growth. This helps reduce the risk of financial cataclysm or excessive asset valuations and speculation. 

To the contrary, when economic activity is slow, monetary policy often lowers interest rates for the purpose of stimulating lending and economic activity. By making money cheap, the incentive to borrow rises or the disincentive is reduced. Low rates also encourage lending activity in specific economic sectors such as the real estate industry. 

The infographic below details international developments in interest rates over time:
History of interest rates infographic link

Financial News: March 27, 2015

Reuters: Apple Inc. CEO to donate $785 million of personal wealth to charity
ZH: U.S. median home prices rose 17.3% between 2012-2014
NYT: Payday loans are the third largest cause of bankruptcy
Bloomberg: Freight train oil logistics negatively impacted by oil prices
CNN: Middle-class college entrants in '04 had a graduation rate of 40% by '12 
AP: Slow pace of oil extraction needs early start for energy independence
BI: Large smartphones are the reason for flat iPad sales
CNBC: Brazil's economy shrunk by .1% in 2014
BBC: France's deficit for 2014 was 4%, .4% below forecast
MW: Japan's inflation rate fell to 0% in February

Thursday, March 26, 2015

Financial news: March 26, 2015

BI: Institutional investors to account for 25% of hedge fund inflows by 2020
Zero Hedge: A flattening Treasury yield curve contradicts monetary policy
MW: Forward PE ratios are weak indicators of downturns during boom times
CNN: Multiple economic warning signs scared investors on Wednesday
BBC: US-EU trade deal has been misrepresented per trade partnership organization
CNBC: Total  401(k) mutual fund fees and expenses can be as high as 2%
AP: Heinz to acquire Kraft foods for $45 billion
Bloomberg: China to invest $35 billion in green-friendly hydrogen tram lines
Reuters: Wells Fargo to cut 1,000 jobs
NYT: The U.S. is a signatory of 51 trade agreements around the world

Wednesday, March 25, 2015

Are credit cards a boon or a bane?

Life has a way of throwing surprises at us and there are going to be times when we need some emergency funds to get us through a sudden expense, like fixing the roof or replacing a water heater. These are the situations that credit was created for and it has served these purposes well for years. Unfortunately, credit is becoming so ubiquitous that many people are losing touch with their finances and spending beyond their means. This has led many to decide that credit cards are not worth the risk, but are credit cards really to blame?

The benefits of credit

When emergencies occur, credit cards and line of credits are almost essential in helping many people stay on their feet and recover from unexpected expenses. Rather than taking out a loan or borrowing from friends or family, they allow people to maintain financial independence during hard times.
For those who are able to manage their finances well, credit cards present the opportunity to shop online, earn various reward points, and enjoy a comfortable lifestyle between paychecks. They also allow us to avoid carrying cash and provide more financial security by virtue of being electronically monitored. However, many people have a hard time maintaining proper controls on their credit spending.

The risks of credit

Since credit cards are so common these days, they have had a large impact on how we regard and spend our money. Extremely convenient and easy to get, they dilute personal responsibility for financial decisions and allow for irrational purchases that may not otherwise occur. Many people end up shopping more than they strictly need to, purchasing frivolous items with money they do not have, and accruing large amounts of debt that may follow them for years.

Anyone with a decent, steady job can qualify for a credit card, or two or three, and this is where the problem truly arises. Because most people have far more credit than they do income, it is extremely easy to overspend and get trapped with more debt than you know what to do with. This has contributed greatly to the rise in bankruptcy as people get used to spending beyond their means. Debts caused by credit cards can also affect your chances of getting home mortgages or good mortgage rates.

Tips for healthy credit card use

1. Close all credit cards with high rates of interest
2. Never keep more than 1 or 2 credit cards at a time and be sure to shop around for the best rates or rewards programs for your family.

3. Don’t use credit cards if you do not have the cash to pay it off right away or by the end of that month. Carrying a balance through several months is a waste of money as you will end up paying significantly more interest.

Credit cards are not inherently good or evil, but they can be quite a temptation for many people who have a hard time resisting the allure of extra spending money. While credit cards are likely here to stay, it is important to have a healthy attitude towards them in order to avoid serious financial trouble down the road.

About the author: I am working as a consultant for finance and education in one of the firms in Canada. I am largely dedicated in giving expert analysis and advisory in education, finance, bankruptcy and credits to individuals, students, entrepreneurs as well as firms and organizations. I do more research on various courses, accredited colleges and educational institutions so that I get in depth knowledge about latest trends in education. Follow me in twitter.

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