Actions to take to reduce certain impacts of inflation

 

By talking openly about money as a family, you can avoid and even resolve some problems and set yourself up for a happier family life. Money is already a part of your child's daily life—and will continue to be throughout their life. Best to educate them at an early age.

 

What is inflation?

Inflation refers to the broad and persistent rise in the price of goods and services.* The rise is usually expressed as a percentage on an annual or monthly basis. When the cost of living goes up, money loses value: we get less for every dollar spent. For example, if an item costs $100 and the inflation rate is 2%, that same item will cost $102 the following year.

 

*Invite your child to complete this activity on the difference between goods and services.

 

What causes prices to go up?

 

There are various factors affecting inflation at the moment, like:

• A shortage of building materials
• Higher oil prices
• Interest rate hikes
• An increase in money supply
• The war
• The pandemic
• Natural disasters

 

"When prices go up, money can't buy as much as it used to. This loss of purchasing power hurts everyone's standard of living." (Bank of Canada: Understanding inflation)

 

What is purchasing power?

 

Purchasing power is the measure of how much you can buy. A loss of purchasing power means the same amount of money buys you less goods and services. Take groceries, for example: If you spend $50 for ingredients to prepare a meal today, you're getting less food compared to last year. 

 

What is supply and demand?

 

This video will help your child learn about supply and demand.

 

What are the effects of inflation?

 

Rising prices have an immediate effect on your budget, causing expenses to increase for things like food (groceries are more expensive), travel (gas is more expensive) and housing (rent is more expensive).

 

The impact will vary depending on a person's choices and lifestyle, such as what's on their grocery list, whether they get around by car or bike, and whether they rent or own.

 

Inflation can affect many aspects of a person's finances. It increases the cost of living, which means the value of your income and savings can go down. With everything costing more, there's less money in your bank account.

 

What can we do to reduce some of the effects of inflation?

 

Help your child understand inflation by telling them what they can do to reduce some of the effects of inflation.

 

1. Make smart spending decisions:
   
   - Set a budget and avoid impulse buys
   - Prioritize basic expenses (such as food and clothing)
   - Make home-cooked meals
   - Check flyers for discounts
   - Understand that advertising is designed to influence spending habits
   - Review your subscriptions and only pay for the ones you actually use
   - Plan your errands to save time and reduce fuel consumption
    
2. Make a budget:
   
   - Leave extra room in your expenses to account for rising prices
   - Save what you can—small amounts add up over time
   - Review your budget throughout the year to make sure it's well balanced

 

Your child will feel reassured if they can understand your situation, choices, obligations and concerns. And the best way to do that is to explain to them the current economic situation and help them understand basic financial concepts. By being open with your child, you'll help improve their understanding, develop their empathy and perhaps even get them interested in helping fight the effects of inflation at home.