I’ve been thinking a lot about financial education, both my own as a child and teenager, and what I hope to impart to my children. I think one of the biggest gaps in my early education was understanding the concept of inflation. Not that I needed a huge lesson in economics, but I know I didn’t understand that my money is basically worth less (can buy less) as time goes on.
To illustrate my complete non-understanding of the concept, I once saved my money in my sock drawer. Really. And I am not talking about a small amount of money. I started working when I was 14, first washing dishes in a restaurant where my mom was a waitress, and I worked my way up to short order cook and waitress by the time I was 15. I didn’t have a lot of expenses, and I am honestly a saver at heart, even though I seem to have lost sight of that somewhere in early adulthood. So the money I made, I saved. I wanted (at that time) to be a doctor, and so I wanted to buy a car when I could drive so I could work more hours that my parents couldn’t drive me to, and I also wanted to buy a car that would last through medical school. So I saved my money to buy a car.
In my sock drawer. Literally. I saved my money in my sock drawer. When I brought tips home or cashed my paycheck, I would count the money, fold it up in a sock, and stick it in the bottom of my sock drawer. I did this for two years. Two years. I am not sure what I had against banks, except that I thought my money was safer with me. Odd, I was. I knew it could earn interest in a bank, but somehow I didn’t think that it would amount to much (yes, I could do calculus yet I needed lessons in elementary math apparently as well). But I never considered that my money was actually losing a little value just sitting around, because of inflation.
Two years later, that money could buy a bit less than it could have at the beginning. That really is a concept I can understand, yet I didn’t at all. I needed to earn interest just to try and keep up with inflation and keep my money’s earning power the same. But instead, I hoarded in my sock drawer. Never mind the fact someone could have stolen it. But sock drawer it was, and $6000 later, I bought a car. My dad worked at the dealership, which is why I think they didn’t freak out at me bringing in $6000 in rolled up cash. But that’s another story.
How do you teach a kid about inflation? I’m not sure, but I am going to do my best to try. And my kids already both have bank accounts, although they haven’t started learning about them yet. I’m not an expert on understanding inflation, but I do understand that the same things keep costing more and more, and that’s the concept I wish I understood a lot earlier than I did.