Definition: Interest rates represent the cost of borrowing money or the earnings from lending or investing it. They are expressed as a percentage of the principal (the amount borrowed or invested). Interest rates affect everything from savings accounts to loans and mortgages. For young people, understanding how interest rates work is essential for making smart financial decisions regarding borrowing, saving, and investing.

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How It Affects Borrowing:

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• High Rates: High interest rates can lead to more expensive debt, such as credit cards or loans, making repayment difficult over time.
• Low Rates: Low interest rates make borrowing more affordable and help savings accounts earn more over time.

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Why it’s important: Knowing how interest rates affect both borrowing and savings helps individuals make better financial decisions, avoid debt traps, and optimize their savings.