Every two years, elections in Congress bring new representatives to both houses. The turnover can affect things like tax rates, healthcare costs and the overall economy. With all of these possible implications, it’s no wonder any big political change can cause us to be a bit uncertain and to hesitate before making big financial decisions. But with that uncertainty can come financial opportunity. Let me explain:
Uncertainty has a proven effect on our financial decision-making. It causes us to become more conservative, live more within our means, and avoid risk and debt—which makes total sense. Think about a rabbit living in a field. If there are always plenty of carrots around, our rabbit is going to have a pretty good life playing in the field, eating the carrots and engaging in other carefree rabbit activities. Now let’s imagine our rabbit lives with more uncertainty. Sometimes the rabbit’s field has carrots galore, but sometimes the carrots disappear for days at a time. Now our rabbit is never sure if he will have enough food and begins hoarding today’s carrots to save them for the unpredictable future.
As humans, we behave a lot like the rabbit when making our own financial decisions. In times of uncertainty, we are much more hesitant to make big financial commitments that involve spending, borrowing and investing. And uncertainty doesn’t just impact our personal decision-making, institutions like banks follow the same pattern, too. This makes sense, but what’s interesting is that we often expect uncertainty to have a bigger impact on our individual and collective finances than it actually does. Since the financial collapse, the economy has been steadily improving and banks that were initially very reluctant to lend money to those not overly qualified are now actively trying to make loans to qualified candidates. So while at the individual level, elections may highlight some uncertainty in the world, from a wider perspective (such as that of a bank), the level of uncertainty is much lower.
So how does this relate to your personal finances? Well, think about it. When individuals are hesitant to acquire a new loan or take on new debt, but banks are eager to provide these lines of credit, what do we get? Competition. At the moment, it’s not uncommon for a small business owner or a qualified individual who is looking for a loan or new line of credit to have multiple competing offers from different lending agencies, each trying to provide a better interest rate or more favorable terms.
In other words, times of uncertainty can actually be good opportunities to make financial decisions. You can benefit from others’ hesitancy to commit. So if you have good credit and have been thinking about buying a house or expanding your business, you may think that the natural uncertainty around elections is a good reason to put off these plans. In fact, the current mismatch between people’s perceptions and the more global perceptions of lending institutions may make this the ideal time to move ahead. Something to think about next time you’re considering a loan, investment or large carrot purchase.
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