The impact of rising interest rates on family dynamics

There's a lot to be angry about these days. From economic uncertainties and wealth inequality to social injustices and political polarisation, numerous pressing issues dominate headlines both at home and abroad.

These dynamics can have a profound impact on our lives, influencing our financial stability, social interactions, and overall well-being.

They can also affect our relationships – not least between the generations. Anyone who has had a heated debate during Christmas dinner will testify to that!

And now the rise in interest rates is exacerbating this conflict

Many young people were already feeling the sting of sky rocketing house prices, and now that interest rates have risen to 5%, they feel like they're taking the hit once again. While older generations who are more likely to own their own homes won’t be feeling the same burden.

It can make things seem very unfair. However it’s not always this straightforward…

So let’s take a close look at this and try to find a way to make everyone happy! 

Firstly, why are interest rates getting the blame? 

Interest rates play a vital role in the functioning of an economy. They affect borrowing costs, investment decisions, and overall economic activity. However, they can have a significant impact on different generations in various ways. 

1. Financial burden on younger generations. As interest rates increase, borrowing becomes more expensive. Younger generations, such as Millennials and Gen Z, who are in the early stages of their careers and looking to secure loans for education or starting businesses, are disproportionately affected. Higher interest rates also lead to higher mortgage rates, making it more difficult for young people to buy homes. Additionally, student loans become costlier, potentially burdening younger generations with higher debt repayments and limiting their ability to accumulate wealth.
2. Retirement challenges for older generations. While rising interest rates can be favourable for older generations, especially retirees who rely on fixed-income investments, the situation isn’t entirely straightforward. Pension funds and retirement savings portfolios face challenges due to the inverse relationship between bond prices and interest rates. As rates rise, the value of existing fixed-income investments declines, causing potential financial strain on retirees.
3. Economic slowdown and employment concerns. Increasing interest rates can also lead to an economic slowdown. Businesses face higher borrowing costs, reducing their ability to invest, expand, and create job opportunities. This scenario can negatively impact younger generations entering the job market, as companies may become more cautious in hiring new employees. The resulting competition for limited job openings can heighten intergenerational conflict.
4. Political and policy implications. Rising interest rates may spark political tensions, as different generations have varying policy preferences. For example, younger generations often prioritise issues such as climate change, social equality, and affordable education, while older generations may prioritise stability, fiscal responsibility, and healthcare concerns. When monetary policies, including interest rate adjustments, are perceived as favouring one generation over another, it can amplify intergenerational divisions. 

So how do we ease the tension?

The burden really lies with policy makers to consider a balanced approach that takes into account the needs and concerns of different age groups. This may include implementing policies that ease the burden of rising interest rates on younger people, such as affordable housing initiatives, accessible education and training programs, and fostering entrepreneurship. 

We’d also promote open dialogue between generations. A problem shared is a problem halved as the old adage goes, and involving everyone in discussions – no matter what they’re about – can only benefit understanding and collaboration.

As your mortgage adviser, we can also help by offering guidance to families who are struggling to understand the economic implications of their current situation. 

We can also support people who are trying to manage their mortgages in a changing interest rate environment. Our business is built on referrals so if you know of anyone who would be interested in chatting to someone about their concerns, please feel free to forward our details to them.

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You can book an online meeting with one of our advisers at your convenience here.

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