00:00What is the wealth effect? The wealth effect is an economic theory that suggests people typically
00:05like to spend more of their money as the value of their assets go up. That's when people like
00:09to borrow against themselves. So here's what I mean. With my own stock portfolio, for example,
00:13I can do one of two things. I can either sell all of it to pay for my lifestyle or my retirement,
00:18or I could go to the bank and say, hey, Mr. Bank, you see this money? I've got money. Give me a loan.
00:23So they give me a loan at whatever interest rate. Now, as long as the interest rate of that bank
00:28loan is lower than the interest rate of what I expect to make from my portfolio, which is eight
00:34to 10% per year, as long as it's lower, that means I'll end up making money. So this theory suggests
00:39that as someone's net worth goes up, people like to do this a lot more.
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