How Inflation Is Impacting Our Money


 Inflation is a term often mentioned in finance because it impacts how we spend and save our money. According to an article written by Poonkulali Thangavelu, in 2005, a movie ticket cost $6.41; by 2019 the cost was $9.16 and by 2022, the average price was $16.29 (Thangavelu, 2023). Thangavelu provides an example of how inflation impacts a luxury expense, but it can also impact the cost of your groceries and other necessities. An article written by Western & Southern Finance group describes inflation as when the price of goods and services increase due to supply and demand, but when that supply or demand goes down, the prices still rise (Western & Southern Finance Group, 2023). Inflation is happening constantly and directly impacting our spending power.

How inflation is impacting your savings

Later, the same article explains how inflation can impact money you have in your savings account. As noted above, inflation is ultimately the reduction of the value of your dollar due to the fluctuation in supply and demand. The article gives an example that if you have $10,000 under your bed, 20 years later, you will have a smaller net worth because inflation reduces your spending power. This is important to note for people saving for retirement, their children’s college, or a new home because it means that you must plan to save more money in order to account for inflation over time. Not accounting for these changes could result in your running out of money when you need it most. 

Saving for retirement 

According to the article by Investopedia, Thangavelu explains that if you are saving for retirement, you must account for changes in inflation to keep up with your standard of living once you start living off your savings during retirement (Thangavelu, 2023). Saving for retirement is not as easy as opening up a 401K;  it requires extensive planning because you are not only planning for your future but also accounting for variables that may impact the outcome.

What you should do to plan for inflation

The article from Western and Southern Finance group explains that because of inflation, it is best not to place all of your money into savings. The article mentions putting a portion of your money into higher growth investments such as stocks or mutual funds because these investments earn more per year than the inflation rate. Instead of researching the projected inflation rate and your future standard of living, place a lump sum into a stock or mutual funds account that will already have the inflation accounted for. Doing this will allow you to focus on your current finances and feel secure knowing your savings will cover your future plans. 

Closing thoughts

Understanding how inflation impacts our money is key to developing financial literacy because it highlights how our money changes over time and can impact how we save for our future. Consider placing part of your savings into stocks or mutual investment funds to ensure you have enough money for your future.


Works Cited 

Thangavelu, P. (2023 February 7). How inflation impacts your savings. Investopedia. https://www.investopedia.com/articles/investing/090715/how-inflation-affects-your-cash-savings.asp.

Western & Southern Finance Group. (2023, September 19). The impact of inflation of your savings and investments. Western & Southern Finance Group. https://www.westernsouthern.com/investments/the-impact-of-inflation-on-your-savings-and-investments#:~:text=3-,How%20Can%20Inflation%20Impact%20Savings%3F,20%20years%20into%20the%20future


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