High interest rates can build character

Spend or Save

Last week, the Federal Reserve announced that it would maintain the current 0% federal funds rate. Some people cheered, because it meant that interest rates would be low and the stock market wouldn’t crash. Though I understand some of the reasons behind the decision, I was disappointed.

I believe that low interest rates do help our economy. Low interest rates make life more affordable, make higher education more attainable, make home ownership more achievable, and make it easier for businesses to expand and hire more employees.

But I wouldn’t be the person I am today without high interest rates. I think that I would be less responsible, more in debt, and have more “stuff” if I had grown up in an age of low interest rates. Those high interest rates helped me build character, reinforced by the “pay in cash” philosophy that my parents and grandparents used.

* High student loan rates encouraged me to pay down my student debt. My college loan rates were a formidable 6% to 10%. My grandfather paid off a big chunk of my student debt direct to the bank after I graduated, from money he had set aside as I was growing up. I paid off my second, smaller student loan as soon as I could, because I hated paying the high interest on the loan.

* High savings rates encouraged me to save. Today, savings accounts pay less than 1% interest, making it more tempting to spend money instead of save it. That’s nothing like the 4% to 6% savings rates I enjoyed as a young adult. High interest rates persuaded me to save money instead of spend it, and spurred me to put away money in an IRA when I was just starting my first job. Those savings made me feel more secure in an uncertain job market and when faced with inflation.

* High mortgage rates encouraged me to pay off my mortgage as soon as possible. My first home mortgage was around 8% or 9%, while today’s mortgage rates are probably half of that. My husband and I chose a home we could afford and decided to pay off our mortgage as soon as possible. By paying a little more each month, especially if we received a bonus or tax refund, we shaved off months from our repayment schedule.

* High credit card rates continue to encourage me to control my spending. With credit card rates between 15% and 20% on purchases, it means we should do our best to pay credit card balance in full every month – or to use credit cards for emergencies only. Over the years, high credit card rates have helped me control impulsive shopping and made me question whether something is really worth it.

I hope that interest rates will start to rise soon, so that our savings accounts can grow and my son can build consumer discipline and character. But it may be a long time before we earn more than a few cents every month in our savings account.

How have interest rates affected your life? Have you had good and bad experiences with low interest rates?

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