In Australia, most of the media treats the federal budget announcements like a Christmas present hand out.  Only the federal treasurer is a bit less trusting than old Saint Nick.  He really doesn’t care if you’ve been naughty or nice.  But it’s sold to us like we’re a child desperately hoping we get a present, but deeply fearful we could miss out altogether.

And while budgets generally aren’t that exciting, you have to realise how they are affecting the behaviour of a nation’s workers. You must go deeper.  A nation’s debt affects you and your family.

Obviously, when you have a loan and owe someone money you are expected to pay it back.  Governments are expected to do the same.  They’re lenders are a bit bigger than the local retail banker, but they operate on similar principles.

CAN THE DEBT BE SERVICED?

When you apply for a loan, the bank looks at whether you can service the debt.  They are more interested in your income than your savings.  Savings can be spent suddenly, as we saw in Australia immediately after the Howard era.  The Labour government came in and spent the surplus very quickly.

WHAT IS THE SECURITY FOR THE LOAN?

Banks grant a loan under several conditions.  It can take security over the asset or liability you are requiring.  And the risk on getting their money back from you can also determine the interest rate.  This is why car loans interest rates are higher than a home.  The likelihood of getting their money back on a depreciating item is riskier than land which generally holds it values or increases.

So, from an international perspective you have to realise the government’s ability to tax its citizens is a guarantee to an international banker that a country can service its loans.

SO HOW DOES THIS AFFECT YOU?

Ok, so how does this play out for the average Joe?

You have to realise a government’s debt is dictating its economic policy, which is simply a fancy way to say how a country will manage its money.  And these policies will then be passed down to its citizens in the way it is taxed, how welfare is distributed, and which business industries it will support to meet its financial obligations and objectives.

When you break it down, you begin to see the control it can exert over the working forces’ behaviour.

For example, in Australia if the government and bankers want you to spend more, the Reserve Bank lowers its interest rates, and generally the retail bank that controls your home loan is expected to follow suit.

Their thinking is, if you have a bit of extra cash left over at the end of the month that you didn’t have to spend on the mortgage, you are very likely to part with it.  If more money is spent, there’s more circulation of cash floating around.  When money changes hands, there are more opportunities to tax your citizens, as they are generating higher incomes. This technique is often used to stimulate an economy.

If the government and banks want you to save rather than spend, they’ll often raise the interest rate on the national bank, expecting the retail banks to follow suit.  Their objective may be to curb growth or a boom, as they believe the economic growth and activity is getting too active and growing too quickly.

When you start to look into the history of banking and who controls the circulation of currency, you realise there are very powerful players in the game.

Recognising you live in this economic matrix that has an effect on your behaviour and consuming habits is critical in beginning your financial education,” says Founding Director of Trading Institute, Derek Whitaker.

“Here’s what really was happening in recent federal budget announcements in Australia.  If you break down the policies the government wants the nation to work harder to pay the international debt off quicker. How is this evident?”

“They are giving small business tax breaks.  They want incentives for entrepreneurs to employ people who they can then tax! Child care bonuses are encouraging both parents to ‘work’!”

“They are getting rid of tax breaks for Fly In Fly Out (FIFO) workers.  With the drop in the iron ore price, especially in Western Australia, it’s time to look for other areas to stimulate the economy for people to work, in addition to mining.”

“So called ‘double dipping’ for maternity leave where a payment from both the government and employees work places is being scrapped!  If mums return to the work place sooner after having a baby this means more work is done, more income can be taxed, and international debt can be paid off sooner.

When there’s a debt to pay, greater economic activity means more taxation of its citizens.”

So what does this mean for you?

Well you can stay in blissful ignorance, and waltz through life while others manipulate the system.  You can work in that system of work harder to service their debts which you did not rack up.  Or you can become financially educated and aware.  Once empowered with knowledge, put things in place where you and your family are less affected by those making decisions on how you should live your life.

Invest in your education.  Start to understand how these factors are affecting you and your loved ones behaviour.

Wake up!  Get on the path of financial awareness, understanding, and getting out of the ‘system’ of others agendas determining how your life should be lead!

When you look deeper, there is more going on in the game of money, power, and a federal budget.

If you’d like to start the path of financial education simply sign up for your free class from Trading Institute’s website and get access to a better understanding of what’s really going on in the finance game.

Trading Institute offers courses where the secrets of professional traders are revealed and give you a broader understanding of what happens in the stock market and world of finance in simple terms.  Access your free class at www.tradinginstitute.com.au

DISCLAIMER: Trading Institute is not a licensed financial planning firm. We are simply an education company, who will give you factual information. We do not give any general or specific advice around options, trading, or anything else.  Please see a licensed financial planner when it comes to any investment advice you need.