W
ow.Justlookat interestrates.Over
mynearlyfourdecadescomment-
ingonmoney,I’vesaida lotabout
interestrates.ButI amsureI havenever
mentionedour“base”ratesetbytheReserve
Bankgoingbelow1%.Now,though,thatlooks
prettymuchlikea certainty.
Likeyou,I readandhearmanyexperts
bangingonaboutinterestratesandwhatwe
shoulddowithourloansandinvestments,but
I amnottoosureanyofusreallyhavea clue
whatis goingon.Myguess,a fewyearsago,
wasthatourbaseinterestratewasunlikely
todropbelow3%.Wrong!
Myviewwasbasedonourfortunateposi-
tionasanexporterof badlyneededproducts- food,resourcesandhigh-levelservicessuch
asengineeringandtechnology.Wearealso
anattractiveplaceforforeignstudentsand
tourists.Wehavea wealthypopulationand
wehavedonewelltoensurethatourwea lth,
whilefarfromperfectlydistributed,is better
sharedthanin prettymuchanyothercountry.
SoI reckonedthatthesenaturaladvantages
meantwewoulddowellwithemployment.
AtleastI gotthatright.Overthepastfew
decades,despitesomedirepredictionsof mass
u nemploy ment,wehavedonerea l lywel lw it h
generatingnewjobs.Myerrorwasthinking
thata well-educatedpopulation,livingina
desirablecountrywithstrongexports,would
needinterestratesnotmuchlowerthan3%to
keeptheeconomyandinflationundercontrol.
This is the bit we can explain with hind-
sight, but few of us saw it some years ago.
The economy and the way we socialise, live
IN YOUR INTEREST Paul Clitheroe
PaulClitheroeisMoney’schairmanand
chief commentator. He is also chairman
of the Australian government’s Financial
Literacy Board and a best-selling author.andworkhavechangeddramatically.Sitting
herewritingthis,at home,in mytrackydacks,
prettymuchsummarisesthenewworld.Soon
I’lltakea break,paya fewbillsonline,check
outmyinvestmentsandsorttheonlinesocial
calendar.ThenI mightdoa shoparoundfor
airfaresfora tripearlynextyear.
Anyway,whathassurprisedmeis thatall
theadvantageswepossessasa nation,plus
highemployment,havenotledtohigher
inflationandhigherinterestrates.Wages
growthhasbeendownrightawful.Infact,it
hasjustoccurredtomethatthefeeI earn,
orI suspectanyotherjournalisttypeearns,
hasnotchangedina decade.Inmycase,the
productivityI gainfrombeingabletowrite
andresearchat homeprobablycompensates
me.Butwithjournalists’jobsdisappearing
rapidly,orat a minimumchangingdramati-
cally,whatpricingpowerdojournalistshave?
Basicallyzero,andthisis a commontheme.
NowasI lookaround,I seemortgagesat
2.99%.Thisis quiteextraordinaryandif there
is onethingyoumustnotdoit is tobeone
oftheestimatedtwo-thirdsofAustralians
payingtoomuchinterestontheirmortgage.
Remember,youdon’tevenneedto switch.Do
a quickonlinecheckandfindthecheapest
mortgageinterestrateyouqualifyfor.To
get2.99%youwillprobablyneeda fixed-rate
mortgage,whichdoesnotmakemuchsense
tomeasratesarelikelytogolower.
You’llfinda wholebunchoflendersat
around 3.4%. Check that you qualify and go to
your lender and tell them “match or I move”.
No point bluffing here – this is not poker. IfI talk to
people every
day who still
pay over
5% – that’s
ridiculous
they won’t match, move your loan. I talk to
people every day still paying over 5%. This
is just ridiculous.
Now we turn to the losers. I am one of these.
It has long been my argument that we baby
boomers, a vast voting bloc, have long voted
benefits to us and not to any other group. So I
do need to have a wry chuckle about interest
rates. After nearly 20 years with a mortgage, we
paid ours off when rates were around 8%. They
pea ked i n 19 90 at 18 .75% , so we were g ratef u l
for 8%. But with interest rates, not everyone
wins. In 1990 I remember my dad telling me
he was getting 16% on a term deposit. Today
you’d be lucky to get much over 2% with a
big bank and 2.4% with a smaller institution.
To be fair, though, as for many part-time
retirees, while our cash returns are smashed
most of us fol low t he pr i nciple of d iversi f ication
and any money in super or shares is doing
really well. Low interest rates are fertiliser to
businesses, and hence shares and super, which
generally holds shares, are doing very nicely.
Take advantage of interest rates on loans.
For investors, cash, except as a safety buffer,
is a very low-returning investment. For the
young and middle aged, negotiate a better
dea l on you r mor tgage, cred it ca rd or ca r loa n.
Switch if necessary. For us middle to oldies,
life is thankfully getting longer. We need to
hold diversified investments more than ever.