I am surrounded by boomers saying this that in their day interest rates were at 15% and we have it easy! I’m also surrounded by the younger generations saying this is ‘not the same thing’
Explain to me the reasoning…
In: 233
Partly because wages have stagnated relative to inflation.
So if you madea median US salary of $29,000 in 1990, and bought a top trim Honda Civic for $5500 at 12% for 5 years, about 5% of your income. That’s $123/mo That ends up costing about $7,400 over the life of the loan. You could readily find 36 month CDs to invest any disposable income at 8%.
In 2022 dollars that would be $67,500 in salary, $12,815 for the car at $285/month.
In the years since, now median income is now only $45,000, that Civic is $29,000 at 8.3%. That’s $592/month, 16% of your monthly income,a total of over $35,000. That’s on top of everything else being 1/3rd more expensive relative to your wages (due to the decreased value of the dollar via inflation outpacing wage growth) so you’re even less likely to be able to take advantage of a comparable 36 month CD which are only yielding 4.7%.
So today the interest rate is being applied to a proportionally larger principle, people are being paid less in terms of buying power, and investments are far less beneficial for those who can take advantage of them.
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