Although we hear a lot of opinions about interest rates and their trends and impacts, very few people seem to understand the meaning and importance/relevance of these rates in various areas of our lives. After many decades of involvement in political campaigning, leadership, leadership training/planning, real estate, financial sales and consulting, etc., I was a firm believer that one benefits from understanding more about these and how they affect so many things in our lives! ! Whether it is related to personal, organizational and/or public finances/expenses, home ownership and related costs, credit related issues, business matters, stock and bond listings, etc., interest rates, true! and they significantly matter! With that in mind, this article will attempt to briefly consider, examine, review, and discuss 5 of these areas, and how the cost of money makes a significant difference.

1. Bond prices and interest rates: The price of a bond is generally inversely related to interest rates. When these rates go down, prices go up, and when they go up, the opposite is true! The bonds have what is known as par value, which is the price paid at the end of the term. Markets typically set them at 100, which is $1,000 per bond, at maturity. However, during the period, the price can go up or down, which affects liquidity – related problems!

2. Mortgage Rates: Over the last several years, we have witnessed and experienced record low mortgage interest rates, which have helped the real estate/housing market in general, especially in terms of price increases. In most areas of this country, we are seeing home prices at their all-time highs, in significant and dramatic numbers! When this rate is low, a homebuyer can buy more home for their money, because their monthly payments are so low. Consider, though, what the potential ramifications and impacts might be when these rates inevitably rise?

3. Consumer credit: Low borrowing costs, help to the automotive industry, in terms of consumer financing, etc.! Although, not as much as other vehicles, the rates on credit card debt are lower, and there are often shorter-term promotions, offering deals! However, since most of these are variable and based on some index etc, what happens when there is an increase in this?

4. Business debt: Another affected area is the business cost of borrowing! Today, they have had access to relatively cheap money, which helps reduce the costs of borrowing, general operations, purchasing inventory, etc. But what happens when this works?

5. Impacts on stock prices: For some time, because bonds have paid so little, in terms of dividends, etc., the stock market has been considered by many to be the only game in town. Furthermore, many corporations have appeared to be doing better than they probably are, and we have witnessed higher price-to-earnings ratios than in the past. How long will this last? How high can you go?

Many factors impact these problems, especially: real and/or perceived inflation; consumer confidence; politics/government actions/the Federal Reserve, etc. The more you know and understand, hopefully the better prepared you will be!