A new study by a professor at the University of Chicago reveals that the saving habits of the ultra-rich are one of the causes why the middle class gets buried in debt. The spending of the ultra-rich helps the economy, so if they save their money, it affects the lower classes.
The ultra-rich people deposit cash to the bank
Amir Sufi, a professor at the University of Chicago, led the latest study and published it in the Chicago Booth Review. The study has similar findings with the earlier study released by Harvard. The survey by Sufi found that the top one percent of households in the United States have just as much influence as emerging-market economies are fueling the debt of the bottom 90 percent.
In the report of Go Banking Rates, they said that Sufi worked with economists, and they said that one of the reasons why interest rates are so low is because there is a significant supply of money relative to demand. A clearer example is when the ultra-rich people deposit cash to the bank, their money gets used and lent out to earn interest. Because there is so much money to loan out, banks promote mortgages, credit cards, student loans, and other kinds of loans. This then brings the money from the interest income.
Why It Affects Lower Classes
Since the savings of the ultra-rich get lent out, and they earn interest through lending, banks offer low-interest rates making borrowing money more attractive. Because many low-income households borrow money for a down payment on a house or car, it would be more challenging to save for them since the money borrowed has to be repaid.
How To Encourage The Ultra-Rich
The researchers believe that tax reform will be one way to allow the government to give out interest-free debts to those who need it. Also, it could encourage the ultra-rich to spend more of their saved-up money.