Saturday, March 24, 2018

Net interest

Net weight. Net income. Net worth. We think "net" makes things more accurate. Sometimes, it makes things less accurate.

I don't have a lot of money saved up. But I have a mortgage. And credit cards. So the interest I pay on my debt is more than the interest I earn on my savings. These days we call it "financial wealth". The interest I pay on my debt is more than the interest I earn on my financial wealth. It sounds pompous to me, calling it "wealth". I don't have enough to call it wealth.

Anyway, I pay more in interest than I earn. If I earn 10 and pay 100, my "net interest" is negative 90, a cost of 90.

But you know what? I don't take money out of savings to make my interest payments. Most people don't, I suspect. The money I do have in savings, I'm dedicated to keeping it. When I pay my bills and my debts and the interest I owe, the money comes out of my paycheck. Not out of my savings. So I'm not sure it makes sense to talk about my "net" interest.

Likewise, I think it is often incorrect to talk about net interest in the national statistics.

1 comment:

The Arthurian said...

Anyway, net interest always comes to zero, right? Interest paid equals interest received. The world has no (net) interest. Yadda yadda.