Q₁. How has consumer debt changed over the past few generations?

Consumer debts are ever increasing as per the statistics.During the 1920s, a person had to save first before making any purchase of a particular product. Those who were in debts those times were considered to be in the ‘trick’ situation (Houle & Jason 452). For instance, in the United Kingdom, a wedded woman was not eligible to receive any credit this changed in the 1970s when a husband had to approve(Houle & Jason 457).  Later on, that is, after two generations everything changed, and borrowing became a habit being accelerated by available institutions whose workis lending. These acts are different when compared with the past age where they were very few. Their presence has increased consumer debts to a high level because one cannot bedenied access to them unless having a poor reputation on financial matters(Houle & Jason 455). These lending financial organizations have led to too many credits thereby an indication of changed generation from the historical ones.

Q₂. What role do interest rates play in consumer debt?

An interest rate is defined as an amount charged when some finances are borrowed and are expressed in terms of percentage. They vary as they can be in either weekly, monthly, or annual basis(Houle & Jason461). In this connection, it is a determining factor during the period of repaying one’s debts. Besides, it shows how much one is supposed to pay back after borrowing money for a specific time say months or years(Houle & Jason463). As usual, a loaned amount has a particular amount to be paid I return, and the determinant of the same is the interest rate charged. It has a few roles, but the highlighted ones are vital.

Q₃. What are the typical interest rates applied to credit cards, mortgages, and other debt?

Interest rates charged on the loaned amount have different names depending on the functions, or the work is going to perform. For instance, credit cards interest rates after passage of grace period are referred to as finance chargewhile that of mortgages are mostly called points depending on the type of mortgage(Badarinza et al., 114). On the other hand, other debts interest rates such as auto and student debts vary from one another(Badarinza et al., 113). In the above types of mortgages, credit cards are the worst as the interest rates are very high compared to others.

Q4. Many of today’s interest rates are variable rather than fixed. What difference does this make to pension plans, housing loans, and other personal finances?

(i). Pension Plans

They are commonly the retirement benefits. The behavior of the rates that are either fixed or varying determines how much should be saved. For instance, if the rates are high, the spending power becomes high thus little to be kept and if they are low, the spending reduces the meaning amount to be saved can are huge ((Badarinza et al., 112)). The latter affects pension plans positively while the first one negatively.

(ii). Housing Loans and Other personal Finances

These type of loans varies from one individual to another depending on the amount one requires. The kind of interest rate agreed during the time of issuance have impacts. For example, the fixed rate does not have any effect as the initial amount decided is granted while for varying frequency, the leading financial institutions have a significant advantage because the dues to be returned are high thus affecting them positively as compared to a fixed rate (Badarinza et al., 113). The same applies to other personal finances in which fixed rate is their option rather than variable rate. In summary, the type of rate employed by lending financial associations determines how much to be borrowed. The preferable interest rate is a fixed one.

Work Citation

Badarinza, Cristian, John Y. Campbell, and TarunRamadorai. “International comparative household finance.” Annual Review of Economics 8 (2016): 111-144.

Houle, Jason N. “A generation indebted: Young adult debt across three cohorts.” Social Problems 61.3 (2014): 448-465.

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