Inflation: Getting Our Kids To Care

By Alec Lindenauer, COR Chief Allowance Officer

“Marsha, Marsha, Marsha!” That’s what it feels like in the world of finance today … Like Jan Brady bemoaning, “Inflation, Inflation, Inflation!” Understandably, that’s all anyone has been talking about. 

What about our kids? 

Are they feeling it? Are they grasping the importance of inflation today? And if not, how do parents explain it in a way they’ll not just understand, but appreciate?

As I so often preach, kids learn best by experience. They learn best when they have ownership of money, freedom to use it, and a strategy to learn about it. Case in point, here’s how my 11-year-old finally appreciated inflation, to the point where she wanted to know more about it.

It started on one of our recent COR Days. For the uninitiated, that’s the first Sunday of every month in which we dedicate one hour to my kids learning about finance. 

Aside from allowance, we review their monthly debit card and investment account statements together. And amongst other things, we discuss their upcoming expenses and income, so my daughters can plan how to allocate their allowance.

After reviewing the transactions on her debit card for the month, I asked Eve how she felt about her spending, and whether or not she’d change anything next month. 

"No,” she told me, “but I see I'm spending a lot less on Starbucks now." When I asked why that was, she said, "It's so much more expensive! The drink I always get was $5.30, and now it's $6.55!" 

What a great observation! I loved that she was paying such close attention, and was thrilled she noticed the 23% price increase. I have a hard time believing she would have noticed the difference had I been the one paying each time. 

Now, let’s just pause and appreciate that my daughter had been budgeting herself. That’s exactly what ownership and practice with money can deliver. And it didn’t require me to be Suze Orman … I just needed some strategy and desire.

But with regards to inflation, I saw an opportunity to really drive home the importance of investing. In reality, inflation is the most important reason any of us invest. If not for the rising cost of goods and services, we’d all be able to stick our money in a mattress. But we need our money to grow, and we need it to outpace inflation. 

Here’s how I drove that point home to my 11-year-old:

First, I had her look at her investment account statement and tell me how much money she had made in the last year. Because we review it each month, this was easy practice for her. In total, she had made a few hundred dollars. 

Then I asked her how much she had made on her cash over the same amount of time. 

“Uh … nothing,” she correctly answered. 

“OK, so which place is better for you long term, if you know your Starbucks gets more expensive each year?” I asked.

“My investment account,” she correctly answered, yet again. And then that’s when I knew the lesson really hit home. I knew then, because that’s when she asked, “So, I’m not just investing to make money ... I’m also doing it so I’m not losing out on what I can buy with my cash?”

Exactly! That light bulb moment was literally priceless. Now, to be clear … I’m not saying she might not need to rehash that lesson more than once. She most certainly will. But at 11, she internalized a critical lesson about investing that many adults don’t. 

Naturally, I did explain to my daughter that she can’t expect to make money with investments every year. In fact, she’ll definitely lose value in some years. But history has shown growth happens more often than not, and while history doesn’t repeat itself, it sure does rhyme.

If you’re looking for a great way to illustrate that, head over to Google Images, and type in “Growth of $1”. Talk about a great conversation starter with your kid!

This content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained in our Content constitutes a solicitation, recommendation, endorsement, or offer by Cents of Responsibility, its representatives, or any third party service provider to buy or sell any securities or other financial instruments in this or in in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. There are risks associated with investing in securities. Investing in stocks, bonds, exchange traded funds, mutual funds, commodities, currencies, and money market funds involve risk of loss.  Loss of principal is possible. Some high risk investments may use leverage, which will accentuate gains & losses. Foreign investing involves special risks, including a greater volatility and political, economic and currency risks and differences in accounting methods.  A security’s or a firm’s past investment performance is not a guarantee or predictor of future investment performance.