I was asked today what I thought was the one bit of economic knowledge anyone should know..... and I said this:
'interest is the price of risk'!
so if a higher interest rate is being changed there is more risk of non-repayment.
If you know this, you can recognise why some people are charged more for loans & why some 'investments' are offered with higher interest rates.
This simple piece of knowledge helps make sense of loans & investments.... and is a useful scam warning
@ChrisMayLA6 Add to that investing! Companies with high dividend payouts also signal higher risk, than companies with lower payouts that have remained stable over time.
When I was young, I was burned by this, so these days I try to limit myself at maximum 4%-5%, given a reasonable payout ratio, and no storm clouds on the horizon.
I'd say that 2%-3% is probably a sounder figure.
