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 Oh... and I'd add compound interest to your price of risk.
@ChrisMayLA6 Very much true. It is a powerful weapon. One of my favourite examples is the calculation of how much the social security taxes of a worker would be worth, if, instead of going into the governments coffers, it was invested over a lifetime at 7% in the stock market. It would be a significant chunk at the end of a working life.
@h4890
Ha ha, yes compound interest is another thing that many people seem to struggle with (as in not quite sure how important it is)