Young people that are doing well financially are benefitting most from the sustained period of low interest rates, and it’s largely at the expense of older Australians.
After last month’s rate cut, only 13 per cent of Australians over 65 were actually better off for it, the rest no doubt reliant on savings accounts, while younger people reaped the benefits of lower repayments on household debt.
In terms of the entire population, just over a half of all Australians were better off for the rate cut.
“At least in the short term, stimulating the economy via lower interest rates mostly advantages high-income families and can even leave some families – typically lower-income families – worse off,” Ben Phillips from NATSEM said in The Australian.
The statistics are fairly clear, after the rate cut:
– Those in the top 20% income bracket gained $536/year on average
– Those in the bottom 20% income bracket gained just $38/year on average
– Over 65s were $29/year worse off on average
“Low income families, renters and government payment recipients and older households tend not to benefit from interest rate reductions,” Mr Phillips said.
“In fact, on average, families who source most of their income from the government are left worse off as interest payments from bank deposits are reduced.”
Recently Reserve Bank deputy governor Philip Lowe made comments that suggested the power of monetary policy to influence the economy is declining.
“Many borrowers have responded to the lower interest rates of recent years by paying off their loan a little faster, rather than increasing their spending,” he said.