3 Steps To Protect Your Family From Inflation

Giving you a quick rundown of inflation. how to protect your family against it and give the kids a financial education in the process

“Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.”

-Ronald Raegan

Inflation is another one of those pesky financial topics that does not affect us most of the time, until it does. In our view the current inflation situation we all find ourselves in isn’t going anywhere anytime soon (we think it persists for years) so being aware of what is going on (and teaching our kids!) can help shape the future.

We may decide to go into more detail on the topic and how to handle it with a mini course if there is any interest (if so just shoot us a note here or comment below) but for now we just wanted to give you some basics as well as some tips for how to protect your family.

We would just also say at the outset that if you didn’t take an economics class growing up or were never taught the meaning or how it can affect you and your family, don’t worry, you are not alone. You don’t need any of that to know what to do (as with most of financial literacy!).

What Is Inflation?

While we could go on about supply and demand curves, different measures of inflation, or purchasing power (for a simple way to explain inflation to young kids click here), but what really matters is that you are seeing price increases on all products and services in your day to day life (for example food and energy). A gallon of gas was about ~$2.20/gallon at the end of 2020 and is around $4/gallon now (as of 10/6/22). Food prices seemingly are also increasing every time you go to the grocery store.

Other items you buy or spend money on are going up similarly, and in our view we are more likely than not going be dealing with higher inflation for a while because once it starts it is very hard to stop (we are not experts and can’t predict the future but it’s worth noting that in the 1970s in the US inflation lasted for about 10 years). Central banks and financial institutions around the world and in the US are starting to fight this and had to fight this for years until it eventually came back down.

While you don’t have to know things like how the Federal Reserve system works, what is vital is that you think about what you can do to protect yourself and your family. Below we have three broad steps you can take right now to start to address the problem head on. 

Step 1: Know Your Budget

This step is key. Before you can figure out how much inflation is hurting your family, first you need to know how much money is coming in and out each week or month. Why? Because when inflation makes things more expensive for you and your family, and in order to keep up with it you need to either spend less or make more (or some combination of the two). How can you spend less or make more if you don’t have a clear picture first about what is coming in and out?

Each person is different but what we have found when talking to people they generally only look at one part of the ledger (spending) when trying to save more money, but remember, if you figure out ways to earn more, you might not have to do anything to your spending. This falls to each individual or situation.

But regardless of whether you decide to spend less or earn more you need to first figure out where you currently are. That all starts with a budget. If you are not sure where to start, we have some suggestions for free budgeting services here. If you are looking for a free google excel template to get you started, we have created one here as well to help. 

We would also suggest that when you do this getting the kids involved. Teaching them to budget from an early age can do wonders for their financial education and help them in the future as they get older (for a simple free downloadable worksheet to help them practice how to budget in a fun way just click here).

Teaching them about budgeting during a time of inflation will help them as they get older and potentially see something similar happen in their lifetimes again. Next time, they will be prepared better because you taught them now!

Step 2: Look For Ways To Earn More

Many people measure the rate of inflation by the CPI (fancy term called the Consumer Price Index which looks at the average prices for a basket of goods over time) which was at +8.2% in September vs. the prior year.

Lots of people debate inflation expectations and where this number is going (we think it will persist at high levels for years), but let’s just assume for now it stays at around here on a year over year basis. This means that if you normally spend $20,000 annually, those same expenses will now cost you almost $22,000 (which is $20,000 increased by 8.3% - for calculating how inflation can impact your costs we have a helpful free inflation calculator here).

In order for you to keep pace with this increase in costs, one thing you can do is look to earn more money. Maybe it’s asking your boss for a small raise (i.e. request to raise your salary in line with inflation), maybe it’s using your car for Uber, or maybe its through investing some money wisely (we are not going to get into detail here on inflation specific investing but for assets that may be good hedges for inflation this lays out some decent thinking).

Regardless of what might fit your situation best, think about how you can earn that extra difference to keep up with your expenses.

The good news is that looking for ways to earn more can also be a great teaching moment for the kids. We are rarely taught today how to actually earn money. Most of us have a job and we get paid as a byproduct of that, but have we every really sat down and just thought about ways to earn?

Getting our kids to start thinking this way can be beneficial to their financial literacy and start them down a path to really understanding how to use money in their life to live the life they want. You might also love for them to help and chip in on the earning side!

For some creative ways that kids can earn money we also have a free downloadable resource here.

Step 3: Find Ways To Cut Back On Spending

Maybe earning more is not an option or not what you want to do, which is 100% your choice. The next option then would be to cut back on spending to reach that goal of making up that expense difference.

Two important money lessons we talk about all the time around teaching our kids are the principles of wants vs. needs and deferred gratification. We believe it is very important for kids to learn both of these principles as early as possible and what better way to teach them than by showing them how and practicing them yourself in order to fight inflation!

Starting with the principle of wants vs. needs, we suggest you first have a look at the budget you created in step one. Go through and look for ways where the family can save. Look over your purchases and identify whether it is a want (nice to have but not vital and can be cut) or a family need (something that cannot be compromised).

Then you can talk about the principles of wants and needs with your kids and explain why you may be cutting back on some wants (for a handy printable workbook of games to help get them understand these concepts a bit better click here)

Moving on to teaching deferred gratification (or waiting for what you want), we suggest you think about what might be able to be put off (i.e. that vacation or night out). Instead of cancelling a fun event completely, you can change this into a potential goal for the family to reach and get everyone involved (even the kids!).

You can also try the marshmallow test for a fun, and little more lighthearted game which has been used to teach this principle for ages.

Regardless of how you choose to teach deferred gratification, inflation can be a great excuse to get the ball rolling. After all, whatever our kids decide to pursue in life it is sure to take hard work, patience, and most importantly, understanding the principle of deferred gratification!

So to sum up, inflation is hard on everyone, and we definitely don’t want to make light of it, but we would also say that with a little effort you can take steps to protect your family while also giving kids a financial education in the process. The latter point here we would also point out can help shape and serve them for the rest of their lives.

For more on how to teach your kids about financial literacy check out our inaugural, psychologist reviewed course here.  

Looking for some in depth books on inflation where you can learn or share with the kids? Check out our curated financial literacy book library here.

Looking for inflation games that can help teach the concept to your kids you can check out our game library here.