Interest rates at zero - the effect on our children

Thursday 30 April 2015

For investors the loss of interest income on their cash, savings and term deposits is terrible. But beyond financial considerations there is another dimension to the whole dilemma. Nobody speaks about the effect this has on our children.

I want to give you an example from the time when I was young. As a 10 year old boy in Germany I still remember the thrill I got when I went to the local savings and loan bank. I had a savings account and deposited money during the year whenever I could. In January or February the following year there was always a special day. The bank credited the yearly interest.

At that time is was 8.- Deutsch Mark. Twice my monthly allowance that my father gave me! The next year with more savings the bank paid me 9.50 Deutsch Mark. That was great.


These were crucial lessons for my later life as an investor. Already as a kid I understood why it was worth saving money. Without a teacher I realized that capital produces income, without working. Fantastic. So, there were two components in life: Work, so that you can save money, and then these savings also produced income. Bingo.


And today? All the magic is gone. My children in Germany have no incentive to deposit money at the bank. No attractive interest is being offered by the bank. In addition: The news is full greedy bankers, a doubtful currency called EURO, governments that do not keep their promises and countries that cannot pay back money that they owe. What a world for a young chap......


The consequence is a grave one: We have a generation growing up without the concept of savings and interest rates. Many have already thrown in the towel. Not worth saving money. No incentive. Better have a good time and spent it, month by month. A possible financial independence ? Unrealistic, not for me. This is sad. A generation where the vast majority will be depend on governments and employers. For life. What an outlook. We should not let this happen. We have a responsibility.