Inflation is the increase in the price of all the products we consume. Gasoline, your packet of cereal, clothes, cat food… Everything costs more. And this increase is not brief. We speak of inflation when the phenomenon lasts over time. The currency therefore loses its value: you have to spend more notes to afford the same things.
What is the cause of inflation
Inflation can occur when people start spending more money and buying more products. On the other hand, manufacturers are unable to increase the pace and supply all buyers. As people fight over their goods, they raise their prices. A phenomenon of inflation also appears in the event of a shortage. Certain products become rare even though there are still so many buyers: their value increases. Another reason: items are more expensive to make. For example, because of the surge in the price of raw materials, such as oil, wheat, metals, etc.
When inflation is high and rapid, prices explode. The purchasing power of consumers is falling, it’s a crisis. If inflation is regular and low, it can be offset, over the course of the year, by rising wages. This is why specialized investigators check hundreds of thousands of prices every month to ensure that inflation remains under control.
Most countries are heading towards an inflationary era that has not been seen in more than 40 years. How can we prepare them for the economic tsunami that is taking shape?
The task does not appear to be easy. Many people do not understand what is happening now. Many have never experienced this situation. According to recent statistics, nearly a third of the current adult population was not born in 1980 and nearly another third was under the age of 15 at that time. In other words, two out of three adults enter an unknown zone. Many of them have no idea how this phenomenon will disrupt their personal finances and, in turn, their daily consumption behaviors.
Interest rate increases are already having an impact on mortgage rates, which are around 5%. Financing a vehicle (purchase or lease) at rates of 8%, 9%, 10% is likely to be the new normal by the end of 2024, according to reports in the automotive finance industry. Not to mention that gasoline is well established at more than $2 per liter and that the grocery basket costs more than 10% more than at the same date last year.
In such a context, how can we approach the subject of inflation which already affects all sectors of the economy? We must make children understand that mom and dad now need more time, more effort to obtain goods and services. They even have to deprive themselves or modify the content of their purchases to avoid getting into debt. If this is not already the case.
This new reality which requires revising the value of assets also affects the child. The latter advises parents to help the child set new realistic goals. If the child receives, for example, $2 for each household task he performs, the exercise consists of determining how many tasks he will now have to perform to afford the coveted object.
An approach also recommended is to address, for example, the rise in the price of gasoline will have much more impact on a teenager who has just obtained his driving license than on a child under 12 who is more concerned about his collection of Lego blocks.
Strong inflationary pressures
Inflation can also be approached in a fun way. To better understand the impact of inflation on the wallet, children can, for example, ask their grandparents about the price of certain consumer goods (chocolate bars, bubble gum, hamburger, pack of hockey cards, etc.). ) when they were young. By writing them down on paper, they can compare these prices with those of today.
Figure of speech is also an option. Tell the child to imagine themselves listening to television in the living room, while their little brother or sister moves into the next room with their drum kit and starts playing. The beating of the stick on the drums will make so much noise that the child will lose parts of his broadcast. That’s inflation, that’s all this noise that prevents us from making good decisions. It’s noise that confuses the issue and prevents us from fully understanding what’s currently happening in the economy.
The subject of inflation, however, is not welcome at every household table. There is no question of discussing rising costs with some children. They are much too young. Why bother them with this adult subject? They don’t need to worry at their age.
There is of course a time and an age to approach topics relating to money. But for parents to avoid talking about the economic hubbub that surrounds adult life at all costs is not a good strategy. It is better that children are prepared and confronted with the realities of life as early as possible.
At what age, precisely, are children more capable of grasping the concept of money and, therefore, capable of adopting behaviors that will help them fight inflation? According to two researchers from the University of Cambridge in the United Kingdom, David Whitebread and Sue Bingham, the answer would be seven years. In a study published in 2013, the two psychology experts determined that most children aged seven recognize the value of money, are able to postpone a decision and understand that certain choices are irreversible. In fact, it is at this age that children adopt good or bad habits regarding money management that will follow them throughout their lives.
However, as recent surveys across the country show, this learning is far from being a formality within families. Nearly three in four families still do not regularly talk to children about money. In the majority of cases, parents do not do it, because they do not consider themselves competent enough to do so.
The idea is not to blame parents, but each of them should take note of their responsibilities. Fundamental values about money develop during childhood and are transmitted by parents. The sooner these values are instilled, the better. Parents are the child’s first points of reference. Not school, not friends, not even aunts and uncles. If parents don’t know where to start, it’s in their interest to seek help.
The historic inflation which is hitting the economy hard is a great opportunity for parents to introduce their children to the basic principles of the value of money. This is the right time to teach them to spend better, to invest better and above all to make their capital grow as quickly as possible. This is the best box of tools to offer to children to overcome the inflation that sets in.