How does inflation affect families? Inflation is a serious subject with tremendous consequences. Here are 6 ways inflation can affect families. I am not an economist or licensed investment advisor. This article is not investment advice.
I am increasingly noticing people who are confused about what’s going on in the economy.
For example, I’ve seen several people share contradictory posts on social media without understanding what is really happening. They’ll post an Instagram story complaining about the cost of housing and the next post will be in support of one of the issues that causes inflation.
Frankly, this is happening because most people are uninterested in finance and therefore are not even remotely interested in educating themselves on it.
In fact, they even blame the wealthy because most people are distracted by the wrong issues. I won’t get into all those issues right now.
But make no mistake, one of the biggest threats that presently exists is rising inflation.
“Inflation is a very serious subject. You could argue that it’s the way democracies die.” — Charlie Munger
Still, many people don’t think it’s that big of an issue. They think it’s a small price to pay for what the world has had to deal with over the past few years.
But in my view, even small rises in inflation are worth worrying about.
In this post, I aim to give my perspective on how inflation affects families to show you why you need to be more concerned about it.
Let’s dive in.
How Does Inflation Affect Families?
As I stated above, even small increases in inflation are worth worrying about.
While the majority of people seem to be relatively unconcerned, it’s the possibility of further inflation increases that scares me.
To put it bluntly, most people have poor pattern recognition skills. They simply look at their lives today and right now. They won’t dare compare their current situation to a historically bad inflation situation such as Venezuela. Their delusional perspectives won’t let them get there.
It’s my purview, though, that these people are not educated on history enough.
In addition, they lack the ability to see how small economic changes add up to massive changes over time. These views prevent them from taking preventative measures.
Plus, they would rather believe the nice, well-intentioned things leaders say instead of looking at what is really happening.
For instance, we have all become familiar with the term “transitory” over the past year. The Federal Reserve said inflation was transitory until it was no longer a question.
If you go back to the 2008 financial housing crisis, prior to when the bubble burst, Ben Bernanke, the Fed Chairman at the time, was on the record stating that “housing prices are unlikely to continue rising at current rates.”
Of course, he was wrong and the bubble eventually burst.
Doesn’t anyone else find it odd that people in these positions continue to be so wrong?
I mean, they are either incompetent or lying…
I know a lot of people, without the prestigious backgrounds, who saw inflation coming.
Why didn’t they?
“Inflation is a disease.” — Milton Friedman
What Causes Inflation?
History shows that there is an unquestionable correlation between increasing the money supply and inflation.
In simple terms, inflation happens when too much money is printed and added to an economy.
In turn, more money competes for the same amount of goods and services. So, the cost of goods and services increases.
If you don’t believe me, listen to the speech embedded below by Milton Friedman on money and inflation.
“The first step to our understanding the cause of inflation is to recognize that is always and everywhere a monetary phenomenon. It’s always and everywhere a result of too much money.” — Milton Friedman
How Does Inflation Affect Families?
Of course, you are probably wondering what this all means to you. Why should you care?
How does inflation affect families?
Let’s take a look.
Groceries Cost More
Inflation affects us all, but it affects families who live pay check to pay check the most.
Imagine being someone who already has a hard time feeding their family, but now your money has 5% less buying power because of inflation.
As such, low-income families have no choice but to cut back or eat less healthy.
No family should be forced to cut back on food.
It Means Less People Can Afford A House
According to the CREA (Canadian Real Estate Association), the average price of a Canadian home increased by 28% over the past year.
To put it bluntly, the dream of home ownership is eluding Canadians.
Many young Canadians are forced to live with parents longer or live with roommates because they simply can’t afford a house anymore.
Personally, my own life has been affected by this phenomena.
Unlike some people, I will never receive help with a downpayment or the cost of housing.
Of course, I am not complaining because it’s more satisfying to be self-made.
But I deserve the opportunity to be able to work hard and save for a downpayment on my own.
Furthermore, I shouldn’t have to move three hours away from the city I work just to find a reasonably priced home that is still too small to accommodate my needs.
I recently had the chance to do this and was approved for enough. However, I ultimately decided not to buy since the market seems outrageously priced. It’s out of line with household income and I don’t see how this can continue. People are going through ridiculous bidding wars and are even forgoing home inspections to buy homes. Sounds like a bubble to me.
Hence why I decided to wait for interest rates to rise. I’m hoping that it cools down this insanely priced housing market. Although I am still worried about the lack of supply.
Quite frankly, if inflation pushes the cost of housing by another 20% this year, I may have to wait even longer to be able to comfortably afford a home.
The Wealth Gap Increases
A lot of people like to point the finger at the wealthy nowadays.
People like Elizabeth Warren will try to point the finger at billionaires like Elon Musk. In reality, Elon Musk is an innovator, job creator, and he just paid the highest tax bill in history. For all the climate change folks out there, you could argue he has done more than anyone for the future.
From where I’m standing, it appears as though they are pointing the finger so the general population blames billionaires instead of their own incompetence.
Furthermore, if you do your research, you will learn that inflation widens the wealth gap. This is why billionaires became even richer in 2021.
In short, inflation causes the price of assets to increase in value. In turn, assets such as stocks and houses increase in value. Since the wealthy have their money in assets, their net worth grows in inflationary environments.
Meanwhile, low income earners have less disposable income because the cost of goods and services increases.
It Leads To Higher Rates Of Crime
Many states are reporting higher crime rates over the past two years. The United States reported 25% more homicides in 2020 than in 2019.
Go figure…
At the end of the day, people need to live and eat food.
If they can’t afford it, they likely have to find other ways to get it.
Obviously, there could be more reasons for the increase in crime rates. I’m not an expert on this matter.
But common sense would tell you that inflation leads to more crime.
Fo further proof, look at the crime rates in countries such as Brazil and Venezuela, which have experienced periods of hyper inflation.
It Leads To More Homelessness
As I discussed throughout this post, inflation leads to higher prices of goods and services.
In turn, people have less disposable income to pay for housing costs.
When the cost of real estate increases, the cost of rent increases, since real estate investors require more income to cover the cost of mortgages.
It always boggles my mind when people want to blame high rent costs on landlords.
Realistically, landlords are helping people who can’t afford homes. People should be grateful and learn who to point the finger at.
I mean, what are landlords supposed to do? Do you expect them to charge lower rent than the cost of the mortgage out of the good of their own heart?
At the end of the day, they likely worked hard and made sacrifices to save money to afford real estate. The cost of rent is influenced by the cost to buy a home and the area that it’s in.
Don’t blame landlords, blame inflation.
It Could Be The Downfall Of Society
Perhaps the worst consequence of all is that inflation could be the downfall of society.
The brilliant Charlie Munger recently called inflation “the biggest long-range danger we have probably, apart from nuclear war.
If that statement doesn’t shock you, consider the proof that inflation ruins societies.
“The classic examples, of course, are the extreme examples of Germany, of Austria, of Russia, after the first world war.” — Milton Friedman
In the more extreme examples, such as Germany, inflation led to the rise of a dictatorship and eventual world war.
I could go on and provide more examples…
“If you look at the Roman Republic, they inflated their currency steadily for hundreds of years, and eventually the whole damn Roman Empire collapsed.” — Charlie Munger
How Does Inflation Affect Families?
In summary, inflation is a very serious topic with tremendous consequences.
In the short run, it can makes life challenging for families with less disposable income. It can affect their ability to afford groceries and it destroys the prospect of home ownership.
Over the long term, it increases the wealth gap which creates more tension in society.
The worst case scenario is that in can actually destroy a society.
As such, it’s important to understand inflation from a historical perspective in order to take preventative measures.
Similar Articles On Inflation To check Out
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