Hi everyone, welcome back to Fiscal Friday. This is Bess Byers, on location from Venice Beach. The YouTube trolls have out name calling, and insist Obama lowered the debt. While this might provoke anger in some, it made me think… Maybe these people don’t know the difference between debt and deficit? No worries, that’s what I’m here for, so today I’m bringing you Beach Budget Basics.
Every beach babe needs a towel, sunscreen, book and bottle of water. But more importantly, every budget babe needs his or her basic knowledge of finance terms.
Let’s start with debt… Debt is a total amount owed to a person or organization for funds borrowed. The United States’ total debt is over $18 trillion.
Often confused with debt is a deficit. A Deficit is the amount by which expenses exceed income. For example, if you earn $60k this year, but spend $80k, you've run a $20k deficit. America’s deficit for Fiscal Year 2015 is $468 billion.
What’s the interest with interest? An interest rate is a fee charged to borrow money, it’s usually a percentage of the total loan. For example, if you borrow $1000 and the bank charges you $90 a year on that loan, your interest rate is 9%. Additionally, from a customer perspective, you can earn interest on savings accounts. It’s important to note the Federal Reserve has kept interest rates artificially low.
Inflation, is the persistent, substantial rise in prices. It’s related to an increase in the volume of money and results in the loss of the value of currency.
On the other side of the spectrum we have deflation, a fall in the general price level or a contraction of credit and available money.
Unfunded Liabilities… I’ve talked about these before, but they’re a biggie so I’ll reiterate. Unfunded liabilities are the amount in which future payment obligations exceed the present value of funds available to pay for them. Basically add up all the stuff you have, subtract that from what you owe. Still in the red? You’ve got unfunded liabilities. America has an estimated $75 trillion to $200 trillion in unfunded liabilities. We don’t really know. Our politicians don’t care.
We can't run from this impending financial crisis. It’s important to know these terms so we don't get burned.
President Obama recently announced his 2016 budget. He hailed his deficits as down, but never mentioned our increasing debt. He also called a $474 billion dollar deficit “fiscally responsible.” I guess we know who doesn’t watch Fiscal Friday…
This is Bess Byers, signing off, and remember, it’s your generation and you’re empowered!