💸 A Brief History of Interest Rates 💸

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In this Issue

• Money News

• Register for Boundaries

• Interest Rates: Brief History

• Weekly Tidbits

A curated selection of news from the week

This Week’s Money News

• The Fed cut rates. Here’s some clarity on how that might impact you.

• We’re finally talking about the Female Domestic Product (FDP), but what does it mean for advocacy and policy?

• Candice Braithwaite’s Keynote highlighted some global similarities in Black women's experiences with money. Watch here.

Upcoming Courses

Register for the Boundaries course now!

When it comes to money, there’s a lot to unlearn. If you’re struggling with setting healthy boundaries regarding finances with loved ones, this course is for you. Join us this Thursday, September 26, as Ed. Opal and Montina Myers-Galloway discuss money, boundaries, and how to create a healthy dynamic that’ll help you reach your personal finance goals. Register here. Bringing a friend? Get one ticket free!

So, what’s the deal with interest rates anyway?

A Brief History of Interest Rates

On September 18, the Fed cut interest rates by one-half a percentage point. Many in and outside the finance industry had anxiously awaited this announcement for weeks. Interest rates can have a significant impact on both businesses and individuals. To some of us, they’re at the top of our minds in every money decision. To others, they’re a buzzword that we know to float around the media and impact us in ways we feel limited control. But what are interest rates really? Where did they come from? Today, I’m sharing a brief history of interest rates to get us all up-to-date.

The Birth of Interest Rates

Interest rates are definitely not new. Our earliest known history of them goes back to ancient civilizations, like Babylon, where trading was becoming increasingly common amongst our ancient ancestors. Interest rates where created for several reasons, but a key reason for them was and still is to account for the time value of money. For instance, due to inflation, $100.00 today is less than $100.00 five years from now. An interest rate on the $100.00 borrowed is meant to ensure that the lender receives the total value of the amount back based on the future value of the amount lent.

Fast Forward

Today, interest rates still play a significant role in the economy's health. They continue to influence businesses' and individuals' borrowing costs and spending behaviors. For instance - remember when folks decided now wasn't the right time to buy a home because the mortgage interest rates were too high? That's just one example. While those high interest rates on mortgages were bothersome to many, higher interest rates play a critical role in protecting the country from economic collapse.

Interest Rates and Inflation

Interest rates are an essential tool for the Fed to ensure that inflation doesn't balloon out of control. When inflation rises, the Fed counts on a higher interest rate to slow down the economy and bring inflation back down, essentially protecting the value of our currency. If inflation and the costs of goods were to become too high, money would become less and less valuable. In turn, the economy would break down. Learn more about why interest rates matter here.

So, how’s the economy now?

The Fed lowering the interest rate indicates that inflation may have finally slowed, which is a good thing. However, we’re still not quite out of the weeds. Getting the economy back to a ‘sweet spot’ will require more time and a delicate dance of many factors that impact economic health. Over the next several months, let’s keep watching to see how all of this lands.

Weekly Tidbits

A Few More Things…

• Money Vocabulary: This week, we have two vocab words. Learn more about them here.

  • Simple Interest: Simple interest is the percentage of a loan amount that will be paid annually in addition to paying the loan principal.

  • Compound Interest: Calculated periodically. Every time it is calculated, the new interest payment is added to the principal amount, thus increasing the dollar amount due every time it is calculated.

• Mindful Money prompt: Take some time to think about your most fulfilling purchases this year. What were they? What made them so fulfilling?

• This week’s money fact: Paper money wasn’t always green. Green ink was a choice of practicality. Read more here.