Thanks for putting the numbers in perspective. A change in the denominator, the per capita figure in this case, certainly seems to make a big difference.
While I can appreciate your point as it relates to rent, I'm still struggling in terms of mortgage payments. Once a mortgage has been paid off later in life, then would not housing expenses be significantly reduced?
Your intuition about the impact of paying off a mortgage is correct. But, in accounting terms it works differently. interest payments on a mortgage are not considered part of consumption. They are part of the income statement. The latter includes interest received and interest paid and therefore net income. Total household income should equal household consumption, savings and taxes. Therefore, when mortgage payments end, household net income will increase, which allows more spending on consumption items. Principal payments on the mortgage are considered part of investment rather that consumption. As those payments are made, households gain equity in the house, an asset that they can later sell. When the principal payments stop, they finally own the full value of the house, end the possibility of foreclosure, and they can switch to using money either for consumption or other sorts of investment. For many people, their investment in a home is their biggest investment.
Thank you for the detailed explanation. Once the principal payments cease, perhaps the newly freed-up funds are, most likely, saved for a rainy day rather than consumed right away.
We ran a tapas and wine bar in Tokyo for several years. I can tell you that the ONLY people who spend in this country are Japanese over about 50 years old.
Even in low-price establishments, oh boy are younger people cheap glass and dish nursers.
Thanks for putting the numbers in perspective. A change in the denominator, the per capita figure in this case, certainly seems to make a big difference.
While I can appreciate your point as it relates to rent, I'm still struggling in terms of mortgage payments. Once a mortgage has been paid off later in life, then would not housing expenses be significantly reduced?
Your intuition about the impact of paying off a mortgage is correct. But, in accounting terms it works differently. interest payments on a mortgage are not considered part of consumption. They are part of the income statement. The latter includes interest received and interest paid and therefore net income. Total household income should equal household consumption, savings and taxes. Therefore, when mortgage payments end, household net income will increase, which allows more spending on consumption items. Principal payments on the mortgage are considered part of investment rather that consumption. As those payments are made, households gain equity in the house, an asset that they can later sell. When the principal payments stop, they finally own the full value of the house, end the possibility of foreclosure, and they can switch to using money either for consumption or other sorts of investment. For many people, their investment in a home is their biggest investment.
Thank you for the detailed explanation. Once the principal payments cease, perhaps the newly freed-up funds are, most likely, saved for a rainy day rather than consumed right away.
We ran a tapas and wine bar in Tokyo for several years. I can tell you that the ONLY people who spend in this country are Japanese over about 50 years old.
Even in low-price establishments, oh boy are younger people cheap glass and dish nursers.