In Australia, a mandatory 9% of your salary is paid into a super-annuation account. This money represents a loan from you to a financial institution, for which they pay you an interest rate X% per annum, once management fees etc are accounted for.
At the same time, almost all Australians take out a large loan from one of the same handful of financial institutions, with a term of much of their working life, for an interest rate of Y% per annum, and invariably Y > X. The only advantage of this arrangement to an individual is that superannuation savings are protected even in the case of bankruptcy, so the risk is attenuated. I don’t know the percentage of Australians who go bankrupt, but I suspect it’s quite small (we have no medical bankruptcies).
It’s also fairly common for people to carry both a credit card balance at high interest, and a savings account at low interest.
I suggest that savings feel safer than debts feel risky, creating the circularity to be pumped.
In Australia, a mandatory 9% of your salary is paid into a super-annuation account. This money represents a loan from you to a financial institution, for which they pay you an interest rate X% per annum, once management fees etc are accounted for.
At the same time, almost all Australians take out a large loan from one of the same handful of financial institutions, with a term of much of their working life, for an interest rate of Y% per annum, and invariably Y > X. The only advantage of this arrangement to an individual is that superannuation savings are protected even in the case of bankruptcy, so the risk is attenuated. I don’t know the percentage of Australians who go bankrupt, but I suspect it’s quite small (we have no medical bankruptcies).
It’s also fairly common for people to carry both a credit card balance at high interest, and a savings account at low interest.
I suggest that savings feel safer than debts feel risky, creating the circularity to be pumped.
This isn’t a money-pump in the same way a mugging isn’t a money-pump.
mandatory != beneficial, so it’s not a classic money pump.
Savings provide liquidity.
On the other hand, people can be pretty stupid about when to pay off mortgages early vs saving more.