The Effects of Politics on Personal Finance

The political landscape of a nation can have a huge impact on the ability of its citizens to effectively manage their personal finances. In the liberal, developed Western World, we take for granted that we have financial autonomy and can manage our own finances with little to no restrictions from the government. Major political turmoil, for example, the financial crisis of 2008, can have a lasting effect on the personal finances of people both domestically and internationally. In order to effectively manage their economies, governments from around the world must strike a balance between encouraging personal savings while avoiding hoarding.

Crises

The most notable crisis in recent history to impact personal finances was the financial crash of 2008. Following the collapse of the US housing market, major lenders began to fall. It was the demise of Lehman Brothers that triggered the global domino effect, which saw governments around the world being forced to step in and bail out banks that didn’t have the necessary capital to guarantee their customers savings. It is only now, almost a decade later, that the global financial situation is approaching its pre-crisis state, although there are still pockets, such as Greece, where the situation remains bleak. This recovery of national economies and the subsequent benefits to consumers seeking to manage their personal finances has been largely driven by policy and regulatory responses, which have included lower interest rates. Unfortunately, this has negatively impacted those who rely on interest rates for their income and has put at risk certain pension funds, potentially setting the world up for another crisis further down the line.

Reaction to Crises

The financial crisis had a drastic impact on domestic policies in most of the affected countries. Many nations took the opportunity to vote in new governments due to their dissatisfaction with their economic outlook, despite the crisis being beyond the control of many of these governments. While there has been a good deal of criticism leveled at certain countries, in particular, the United States, for failing to respond to the crisis with the necessary far reaching reforms, there were some policy changes which played a part in helping the world economy recover.

Quantitative easing mitigated the damage of the economic downturn and prevented it reaching the same depths as the Great Depression. Political management is a branch of political science which prepares students for working with politicians on formulating policy. An online masters in political science, which is now offered by a number of leading universities, is an excellent option for those who are considering a future in politics.

Domestic Policy

There are innumerable ways that domestic policies can encourage or discourage consumer spending. Domestic policy will also affect the jobs market, and this is perhaps the most immediate way that politics influences economics. Our globalized economies mean that no individual market can undergo a dramatic shift without it affecting international economics more broadly. Again, taking a masters in political science online is a great way to prepare for a career in formulating policy alongside politicians.

Politics, both domestic and international, has a profound effect on economics and the link between the two is growing ever stronger as our world becomes more integrated and more interconnected.