Stone the flaming crows. So THAT’S why interest rates go up.

If people don’t understand your explanation, explaining it again with bigger words probably isn’t the answer.  I’ve been thinking about that this week, watching people explain interest rates and inflation. Some have made it make sense. Others have lost me somewhere around “capacity pressures”.

“Restrictive policy”, “underlying inflation” and “supply constraints” are all perfectly legitimate terms. (I looked them up).  But maybe, like me, you’ve just spent $9 on a punnet of strawberries and you’re wondering why making your mortgage more expensive is supposed to make life less expensive.

This is where stories and analogies help. (Before any economists come for me: I’m not one of you. If you saw the things I use my calculator app to work out, you’d know that immediately. But I do know a fair bit about helping people explain complicated things simply).

Imagine 20 people all want the same 10 concert tickets. There aren’t enough tickets to go around, and everyone has money in their pocket. So people start offering more.

$100 becomes $120. $120 becomes $150. The tickets haven’t become better. There are just more people wanting to buy them than there are tickets available. The seller knows this and the price goes up.Then interest rates come in and some people decide ‘actually, I won’t pay $150. I’ll sit this one out’. Now you’ve got 12 people chasing 10 tickets instead of 20.

It doesn’t mean the tickets suddenly go back to $100. And, disappointingly, I don’t think it means my strawberries are going back to $4 either. It means there’s less demand and so,  less pressure pushing the price from $150 to $180 (or my strawberries from $9 to the point where I need to discuss financing options at the checkout).

Let’s head to Summer Bay for another explanation.  The Diner is packed every night. Irene can comfortably serve 25 dinners, but 50 people want to eat there. Fish and chips are $25.

Irene puts it up to $30. Everyone keeps coming. She needs another cook. Good cooks are hard to find, so she has to offer more money. Her fish supplier is struggling to keep up too. Transport costs rise. The fish costs Irene more. But because the Diner is still packed every night, Irene can pass those higher costs on. So she charges $35 for the fish and chips.

Alf has already called the $35 fish and chips a flaming outrage. But he still ordered them. And so did every one else.

Then interest rates rise. Suddenly people in Summer Bay have a few hundred dollars more going to their mortgages each month. Borrowing is more expensive, saving is more attractive. Dinner at the Diner three nights a week becomes once a week. The Diner gets quieter. Even Alf starts eating at home.

And before Irene puts the fish and chips up to $40, she has to think: Will people actually pay it?

Stone the flaming crows. We’ve just explained monetary policy!

Obviously, the economics are more complicated than concert tickets, and Alf’s dinner. But the point is, if you are communicating to an audience outside your own level of understanding, you don’t need to prove you’re full bottle by using complicated language. Look for an analogy, story or example that helps someone else understand it too.

You don’t have to explain all the complexity. You have to find a way for people to understand the part that matters to them. So you’re doing the hard work for your audience.

Meanwhile, I spent $38 on a showbag at the Royal Show, so apparently, I’m part of the problem.