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Debt Crises In Japan And The Increased Interest Rates

Personal finance is an individual or household’s decisions regarding savings, debt, utilities, bills, budgeting and spending monetary resources. There are many factors that affect personal finance; wants and needs, status quo, purchasing power, employment, income taxes and personal expenses are a few to be named.

Japan is facing a growing burden of debt due to increased interest rates. This will naturally affect the country’s economy as the government would try to counterbalance rising interest rates and resulting debts with higher pricing. This will eventually cause a decrease in consumer spending because higher interest rates directly affect the credit market by making borrowing more costly. The inflation rate in Japan for 2013 is 0.17% less than the previous year. So for every 1 Yen, the Japanese has 0.17 Yen more to spend. The purchasing power of a currency is inflation.

Increasing debts on governments and their result on consumer spending is virtually every country’s problem. The causes date back to the recession of 2008; the effects of which are still in air. An increase in consumer debt is a way to increase domestic production in the sense that greater availability of credit would increase the demand for goods which would in turn increase domestic production. When interest rates are high, consumers don’t pick loans with higher rates as a debt management strategy. This reduces demand and in turn affects the country’s production and economy. The cycle doesn’t stop here. Poor economy means lesser job opportunities and more unemployment. This is a major factor that influences personal finance.

Japan has an ageing population. Due to extremely low birth rates it has continuously seen a reduction in young work force. If the situation continues, it would eventually mean an accumulated debt that would be a problem for the smaller workforce to pay off. Not paying off debts may give rise to further fiscal problems which will eventually affect personal finance as people will have less spending money or more spending money but with less purchasing power due to higher inflation rates. This also has an impact on the savings people can make. With most of their budget being consumed by utilities and rents, it is hard for them to put aside for medical insurance and retirement and pension plans. Most people would set priorities to live properly in present than to save for an uncertain future. Personal preferences affected by country’s economic policies are one major factor in developing behavior related to personal finance.

Where 30% of Japanese are 65 years of age or older, they enjoy the longest life expectancy rates in the world. These statistics are a nightmare for pension funds because they have to seek alternative investments in order to keep making money. With falling stocks and increasing debt burdens, this too creates problems and companies fall for baits like AIG’s plans which end up in nothing but loss.

Muzahed I.
Muzahed I.http://financepitch.com/
I am Muzahedul Islam. Executive Editor of Financepitch.com. Reach me out for writing opportunities on this website.
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