Something’s Eating Your Money!

Something’s Eating Your Money!


This dollar bill has a DISEASE. It might seem healthy, but if you look real
close, you’ll see a virus that is slowly but surely eating away it’s purchasing power
every day. This particular virus is named inflation,
and every dollar in your bank account is infected with it. If you’ve ever taken a high school economics
class, you’ve probably already heard the term. But most of us only know that it’s the reason
one day we’ll tell our grandkids “Back in my day, Macbook Pro’s only cost one bitcoin”! But inflation isn’t just some benign force. It’s why getting a raise is so important, why the
cost of education is spiraling out of control and in extreme examples, it’s affecting
millions of people’s ability to put food on the table. And it’s something you need to learn how
to live alongside without letting it sideline your financial goals! Now, inflation wouldn’t be such a big deal
if everything inflated at the exact same rate. Who cares if housing prices skyrocketed if
your salary instantly compensated to match. The problem arises because different things
inflate at different rates and sometimes for completely different reasons. There are two main types. The first is cost-push inflation. This is when companies are forced to raise
prices because the cost of the materials to make the thing or provide the service has
gone up. For example, did you happen to notice how
vanilla ice cream is getting more expensive? Madagascar, the world’s largest supplier,
has been consistently hit with terrible storms that have been destroying the delicate crop. So if the companies relying on vanilla want
to keep their profit margins the same, they will have to consider pushing that increased
cost onto their customers in the form of a higher price. Which they can get away with to a certain
point, assuming the economy is healthy enough for it to not affect demand too dramatically. Then there’s demand-pull inflation. Take our hometown Austin. It’s a rapidly growing city but the supply
of housing hasn’t been able to match the demand. Meaning landlords and people selling their
homes are in the position to ask for higher prices than they did the year before. While both of these examples aren’t super
fun on our wallet, inflation is in many scenarios related to growth. When an economy is growing, the overall demand
for goods goes up. Conversely, when the economy isn’t going
well inflation tends to decrease because there’s not enough demand to support a price increase. But, like a virus, if inflation is allowed
to run rampant, really really bad things can happen. Take Venezuela. Corruption combined with economic mismanagement
and an authoritarian government has led to a humanitarian crisis of epic proportions. The hyperinflation is so bad that the government
refuses to share any official numbers, so Bloomberg created “the Cafe Con Leche index”
measuring the price of a cup of coffee in eastern Caracas. In March of 2018 that cup of coffee cost 1.2
Bolivars and just one year later, that same cup cost 2,800 bolivars. It’s no wonder that at nearly a third of
the population has left the country. So, whose job is it to make sure that doesn’t
happen? Here in the US it’s the Federal Reserve. The Fed, is the bank of banks and its job
is essentially to walk a tightrope between encouraging the economy to grow, aka, allowing
prices to rise, but at the same time, keeping inflation from gaining too much ground and
taking away the purchasing power of its citizens. The Fed tries to fight inflation in three
different ways: Setting the interest rate that banks borrow money from them, adjusting
how much cash banks are required to have on hand, and deciding how much new money can
be printed. These methods control how much money is floating
around the economy. The more money floating around, the more liberal
banks feel about lending it out, so interest rates go down. Which means it’s easier for people like
you and me to get a mortgage, a credit card, a student or small business loan, and the
economy grows. But if it grows too fast, prices will go up
faster than wages can keep pace—and your savings are suddenly worth a lot less. That money you set aside for a Hawaiian vacation
will now only get you as far as San Antonio. There’s no question that regulating inflation
on macro-economic level is massively complicated. Thankfully, Unless you’re current Federal
Reserve Chairman Jerome Powell, you don’t have any control over it. But on the micro-economic level it’s your
job to inoculate yourself. And guess what, there’s only one vaccine
out there, investing. Most people know they should invest…but
why? Why can’t you simply save your way into
wealth? I think it’s time to… Run the numbers! This is Tricia. She feels sort of scared of the stock market
and travels a lot so she doesn’t feel like owning real estate for the foreseeable future. What if she wanted to try and save money into
a checking account to get to her personal retirement goal of 850,000 dollars? If inflation didn’t exist, it would be pretty
simple algebra. If she started saving at 30 and wanted to
retire at 65 that would require her to save $2,023 per month in order to hit her nest
egg goal. A challenging number to hit even for higher
earners. But the reality with inflation is way worse. The Fed’s goal is to keep inflation at around
2 percent per year. So let’s say that actually happens. That means in order to keep the same purchasing
power of 850,000 in the future, her new goal will have to be adjusted to almost 1.7 million
dollars. That would require her to set aside double
the money or the equivalent of $4,047 per month. Yikes! But if Tricia decided to educate herself a
bit and move past her investing fears, she could harness the same forces that created
the inflation in the first place to her benefit. If she decided to invest her way to retirement
through some stock-based mutual funds with an average return of 8% per year, she could
still hit that 1.6 million dollar goal, by only saving $822/month. Ok, while that’s not chump change, that
sounds WAY more realistic than four grand a month! It’s also important for Tricia to keep a
close eye on her income. If it doesn’t increase to keep pace with
inflation, she’s essentially making less money every year, even if her salary stays
the same. So instead of seeing inflation as an evil
virus, let’s think of it like another invisible powerful force, the wind. You can choose to work against it or hoist
a sail and let the forces at play work on your behalf. And that’s our two cents! Thanks to our patrons for keeping Two Cents financially healthy. Click the link in the description if you’d like to support us on Patreon. Have you noticed the effect of inflation in
your life? Tell us about it in the comments.

100 thoughts on “Something’s Eating Your Money!

  1. Alot of what you are saying is not inflation. Its supply and demand. Inflation is caused by printing money. Quantitative Easing. It's all bullshit.

  2. Home prices only increased 3 to 6% per year since the 1930's until the 2000's when BANKs jacked up the prices of existing homes to fuel the mortgage scam that came to a head in 2008, where BANKS increased the cost of the home on paper to sell to investors who thought the mortgage was attached to a larger home. In 1999 a blue coller home was $100k, by 2006 the same home was $500K, so the BANK could bundle and sell that debt to an unaware investor in the for of a CDO or CDS, that home value fell to about $300K after 2008, leaving the home buyer hold a big bag of debt on a crap home. Now home prices are at the artificial bubble rate so banks can run the scam again, and keep unfortunate home buyers that did not loose their home and savings due to Realitors, Lawyers, and Bankers as a team, assigning home buyers with SCAM mortgages, thus the home buyer loosing a down payment and the home if they could not weather the SCAM. Ask Bill Moyers at PBS, he knows.

  3. "Back in my day, Macbook Pros only cost one Bitcoin."
    Child in the year 2030: "Gramps, that's an example of DEFLATION. Macbook Pros these days cost a mere 1/100th of a Bitcoin."

    But seriously, Bitcoin is attractive for the same reason gold is attractive when inflation is a concern: it acts as an alternative store of value that (one hopes) will hold its value better than your national currency — be it the USD, the Euro, or the Venezuelan bolivar.

  4. Cheers from Argentina! The country with an accumulated inflation of over 200% during the current government! 🙁

    Great work on all your videos, important lessons for everyone in every country 🙂

  5. and when your 8% turns to -50% the year you need to retire GL with that – ask any retiree post 2008 – and it will hapen again!

  6. A lot of this has to do with wages not keeping pace with inflation since the 70's (in relation to buying power). Robert Reich videos explain this very well in a similar educational form.

  7. I'm studying Canadian securities and you guys would be amazing to learn from! So simply put and fun to watch.
    I watch your videos on the train to work and at lunch. Oh and baking. I just made muffins while enjoying an inflation lesson. 🧡

  8. I like your attitude and your intentions. Please show the math on how $822 monthly grows to $1,699,906 at 8% per annum. I get close, but not exactly. Also, it's not correct that bank interest rates would be zero if inflation is zero. You forgot about pure time preference (which gets messed up with government intervention pulling down the short end of the yield curve).

  9. Though the advice of investment is sound over a long period of time, though 8% returns are hard to find even in index based mutual funds. Even if a fund is able to give you an 8% growth, then a lot of these funds then take back a couple percentage as their fees. In the short term if you invest at the wrong time a crash in the economy can set you back 10 years or so, or the difference between someone who started investing in 2006 (pre-recession) vs someone who started investing 2009 (post-recession). If inflation is your only fear there are Inflation protected bonds (I-series bonds) usually you can move money out a year. I'm concerned that every advice about saving or investing has returns that are much higher than what's actually out there and misses that your bound to have cyclical dips over time to drop returns even more. In a way most people hurt during recessions and don't have spare money to invest when returns are highest and they only invest after recovering right before another crash, here's where people with lots of money will win no matter what because they can invest when everything else is frozen.

  10. When u use monopoly money backed by nothing, u can create as much inflation as u want… Look zimbabwe for example, US dont have sucha high inflation only because US dollar have the reserve currency status and all the inflation is divided between all the dollar holders. So please dont bulshit people, inflation is created by the goverment or central bank, basicaly same thing.

  11. I make decent money and can afford most things I want within reason, so I've been happy with my finances. Thus, my money is in savings. This video has seriously gotten me to consider investing – more than anything I've watched or read. Kudos on an excellent video that's informative and fun. Thank you.

  12. I love your videos! Can you "run the numbers!" on how printing bank notes and fractional reserve laws also effects inflation?

  13. Total left out the two and only reasons why the US dollar decreases in value. 1. The FED prints more money and is introduced into circulation in the form a loan to the US Government thus causing inflation or decreased value of the currency. 2. Fractional banking. Banks loan out 10 times what they have on hand creating new money out of nothing and that gets introduced in to circulation causing inflation. The rising cost of goods or services base on limited supply is not inflation, it is simply the basic principle of "supply and demand". Thumbs down on this video.

  14. The government lies about inflation, the real rate is much higher than 2% and the federal reserve knows it. The federal government and the federal reserve bank collude to keep inflation higher to help pay down their massive debt spending (in our kids and grandkids names), yet this more or less forces more and more people to borrow more to keep their spending high even as their wages fall. It's a massive scam that spans multiple decades, and it is most assuredly going to end in tears, along with the elite buying up all of the assets afterwards. If the American people ever actually wake up to this there would be a revolution overnight.

  15. If mending credit profile was an art then Mr. Jim would be a Picasso if it. He helped me to fix my credit & raised my score to 850 from 564. Negative items in my report on EQ, TU & EX are now permanently gone forever, few primaries added too. I can’t thank him enough for the successful credit sweep service
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  16. I love you Two Cents and as soon as I get my financial life in order I will be contributing to your channel any way I can (Patreon :)!

  17. Hi Ya'll ~ I have a question! I am interested in trying investing, but I only want to invest in something that meets my ethical standards, like Green Energy or Organic Agriculture – or maybe more neutral investments like local governments or gold. I am just now coming out of living paycheck to paycheck with finally having a good level job, so I need to start small. Do you think apps like Stash are a good way to achieve this? Or are they exploitative? I am a super newbie, but I want to start learning!

  18. No mention of the DEBT BASED MONEY CREATION MECHNISM from the private bank known as the "federal" reserve.??? This video does not address the actual money creation mechanic, which makes it mandatory for inflation to occur.

  19. I JUST FOUND OUT YESTERDAY SUBS AT SUBWAY R 11 DOLLARS!!!!!!!! I KNOW YALL REMEMBER 5…..
    5…… 5 DOLLAR FOOTLONGSSSSS

  20. Great video’s. Well produced and very informative. I am retired now and would love to have had these interesting video’s when I was young.

  21. The next time a deflationary period occurs, those people fearful of investing will be laughing all the way to their savings accounts.

  22. Does your 8% speculation include the fact that Boomers are selling off their investments to fund death and retirement? As the largest generation to ever invest liquidates and the Millennials are kept out by paycheck to paycheck lifestyles, it will be at least two generations before we see the Wall Street gains like we saw post-WW2.

  23. You know why counterfeiting is illegal? Because it creates inflation. It is thievery without actually stealing peoples savings. But when banks do it with fractional reserve banking, its called a loan. 😂

  24. the fed doesn't "fight inflation" it creates it….only time they ever really seriously tried was under Paul Volcker w/ 20% interest rates. Imagine seeing banks nowadays getting charged the same interest they charge us for credit cards….it would be mayhem

  25. Your videos are very useful. In India, when MCD started opening in Bangalore ice creams were sold for 5rs and today it's sold 25rs.

  26. You have great videos but this one is just wrong and biased in favor of central banking. The biggest misinformation is stating that inflation promotes economic growth…The only part worth watching is "run the numbers"

  27. It's called legalized plunder. Frederic Bastiat talked about it in his book "The Law" One of the greatest books ever written on economic principles.

  28. 8% average annual return from a mutual fund over the next 35 years is pretty optimistic. I wouldn't count on over 5% for a global equity fund over 3 decades.

  29. I don't know if this is inflation or just our government adding too much tax but I remember soda to be just 7PHP back when I was young and now it's 10PHP and I'm not even that old yet.

  30. Gold Standard. How we miss you. If our fiat currency was backed up by a precious physical medium that appreciated in value then we don’t need inflation…instead of prices going up how about the purchasing power of our fiat currency goes up therefore prices can remain the same. I don’t think deflation ever happens when the economy tanks. Food, energy, healthcare, and education did not go through deflation during the Great Recession. There prices just stayed the same or had minimal inflation hikes. Nothing truly goes through deflation.

  31. It's a good thing the Fed doesn't purposely cause inflation and instead allows the economy growing by actual consumption, amirite?

  32. maybe we wouldn't have such an inflation problem if the government would stop letting people send so much money out of the country with limited tax and printing it in mass to make up for it.

  33. Have I noted the effects of inflation? yes my country is full of venezuelans and the cheap workforce is hurting the already bad economy of my family

  34. AND WHAT'S WRONG WITH A VACATION IN SAN ANTONIO?!?! Ha, I'm kidding, I know what ya'll mean, and I love my city Alamo City. Thank you guys for making this video!

  35. This is the most important channel on Youtube. No exaggeration, because the things these people talk about, concern everyone's life today and in the future.

  36. Scotiabank signed up my husband for a insurance without telling him. He paid hundreds of dollars when he didn't pay his credit card and told him he signed a agreement. He never used it and only gave a $70 refund when we asked. Beware of things you sign. Take the time to read the agreements and then sign.

  37. Lot of misinformation in this video. Inflation doesn’t mean economy is growing and the idea an economy can grow “too fast” makes no sense. You can have inflation and a stagnant economy (stagflation). Inflation is just an expansion of the money supply

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