According to the current state of affairs, the interest rates in the developed countries are to fall close to zero and remain there for a prolonged period of time. For example, RGE states that US Treasuries TIPS market is anticipating less than 0.5% annual inflation for the next 10 years.
This means, if you happen to have some funds in the mentioned areas, the value of your assets will not fall (as a result of inflation) for some time. That is a period when saving makes sense.
The opposite situation, when inflation is high, is when it is better to get a loan. At the extreme, in extremely-high-inflation regions, it would be possible to buy a real asset - a car, a house, etc. - with a loan. The amount of that loan would be almost insignificant in a short amount of time.
But, to get back to the issue at hand. While saving for a goal now makes more sense, the interest rates on savings are quite low so that ceases to be a viable investment. People are, therefore, encouraged to start and invest into a business, a value-producing activity. Some might think that it is also a good time to buy a long-term asset, like a house, because the interest rates are low. But this is more questionable than it looks at the first glance. If one is to take a variable rate loan, then the variable rate will follow general trends and, if the loan extends over a 20- or 30-year period, there are going to be times with both high and low rates. Similarly, if one gets a fixed-rate loan then that fixed rate is already calculated by the financing institution to predict an average value over the loan time range. Hence, if the official interest rate is low the fixed rate on loans will be higher.
So, stick to real values - get and keep a good job, do it well, do what you love, and hold on to who you love.
This means, if you happen to have some funds in the mentioned areas, the value of your assets will not fall (as a result of inflation) for some time. That is a period when saving makes sense.
The opposite situation, when inflation is high, is when it is better to get a loan. At the extreme, in extremely-high-inflation regions, it would be possible to buy a real asset - a car, a house, etc. - with a loan. The amount of that loan would be almost insignificant in a short amount of time.
But, to get back to the issue at hand. While saving for a goal now makes more sense, the interest rates on savings are quite low so that ceases to be a viable investment. People are, therefore, encouraged to start and invest into a business, a value-producing activity. Some might think that it is also a good time to buy a long-term asset, like a house, because the interest rates are low. But this is more questionable than it looks at the first glance. If one is to take a variable rate loan, then the variable rate will follow general trends and, if the loan extends over a 20- or 30-year period, there are going to be times with both high and low rates. Similarly, if one gets a fixed-rate loan then that fixed rate is already calculated by the financing institution to predict an average value over the loan time range. Hence, if the official interest rate is low the fixed rate on loans will be higher.
So, stick to real values - get and keep a good job, do it well, do what you love, and hold on to who you love.
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