Poor people do not benefit less from debt than rich people do—they benefit vastly more, because they have major cashflow and liquidity issues. (I wouldn’t go so far as to claim interest rates are the least important things about debt, but they are discussed disproportionately compared to aspects like credit availability.) They do not shun debt, but use it in countless highly complex forms to deal with the challenges of routinely running out of money before the next pay period, or the ‘feast or famine’ variance in payments that to a richer (ie. middle-class) person would barely register as a blip on their bank account balance. Arbitraging 2% vs 5% ROI is trivial compared to arbitraging ‘not getting evicted’ or ‘not getting fired’. (Borrowing $20 for gas in the next half hour can be life-changing; getting 40 cents extra on your Vanguard ETF retirement account 50 years later is not.)
Incidentally, I would note that Polonius is an aristocrat speaking to an aristocrat (and about to be killed through his own foolishness), and his advice should not be taken on finance, or perhaps anything else either.
The economics here seem wrong.
Poor people do not benefit less from debt than rich people do—they benefit vastly more, because they have major cashflow and liquidity issues. (I wouldn’t go so far as to claim interest rates are the least important things about debt, but they are discussed disproportionately compared to aspects like credit availability.) They do not shun debt, but use it in countless highly complex forms to deal with the challenges of routinely running out of money before the next pay period, or the ‘feast or famine’ variance in payments that to a richer (ie. middle-class) person would barely register as a blip on their bank account balance. Arbitraging 2% vs 5% ROI is trivial compared to arbitraging ‘not getting evicted’ or ‘not getting fired’. (Borrowing $20 for gas in the next half hour can be life-changing; getting 40 cents extra on your Vanguard ETF retirement account 50 years later is not.)
A useful reference for me for understanding this was reading Portfolios of the Poor.
Incidentally, I would note that Polonius is an aristocrat speaking to an aristocrat (and about to be killed through his own foolishness), and his advice should not be taken on finance, or perhaps anything else either.
Thank you for the book recommendation! It seems likely I would find it interesting.