Here is why you need to care about government's debt

3/13/2017


According to minister of finance, Pravin Gordhan, government debt now stands at R2.2 trillion, or 50.7 per cent of GDP. Interest payments are a rising share of expenditure.

This means the nation’s long-term fiscal challenges remain.

Yet spending decisions made by our government can seem abstract and irrelevant for what matters to you. But the current spending culture by our government affects us and unfortunately, high government debt is having more of an impact on each of us than we realize.

Government's debt is linked to all of the financial problems we have in the country.

Why should you care about government's debt and how does it affect your life? 

Higher interest rates on home loans, car loans, and other loans. For many people, this means having to wait to buy a home. High interest rates on loans can prevent people from getting a loan to start a business, make home improvements, or further their education.

Higher inflation. We’ve already seen food prices rise over the past few years. Higher inflation hits the poor and middle class hardest, because hard-earned dollars don’t go as far. Food, clothing, and medical care all cost more.  Seniors who are living on fixed incomes can see their savings dwindle. People who are in the middle class can start slipping toward the poverty level.

Keeping the economy down—and driving it down further. Deficit spending by the government is not separate from the economy; in fact, it drains money from private savings, which means fewer people are investing in the economy. In short, high debt kills jobs. It lowers wages and salaries as it drags the whole economy down.

This is why you should keep your eyes on how much government is spending because all that debt has to be paid somehow, mostly through higher taxes. And if you are not paying for this debt in the form of explicit taxes, you’re paying for it indirectly in the form of inflation or in the form of borrowing.

And if these things bother you, talk to your financial advisor about the best way to consolidate your investment strategy. In addition, consider investing a little more and spending less.

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