Help! Money is burning.
Inflation is destroying your saving and you must do something about it
It's December 2021. It's been a good year for you. Things worked out just as you have planned it and just yesterday, you hit your target saving of ₦1m on piggyvest. You are ecstatic and happy. You opened Twitter to tweet and blow your trumpet about this milestone. You saw that the whole timeline is in absolute chaos, They are all saying something about NBS saying that the inflation rate is now at 20%. You don't understand what that means, but you saw everybody cursing Buhari for the inflation rate that is 20%. Not wanting to miss out on the current momentum of curses. You add your own:
"It will not be better for Buhari"
"Thunder fire Buhari"
"It is fire that will burn him"
You feel anger rise from within you, but you suddenly remember you have ₦1m in your piggyvest, you smile and say to yourself "Buhari cannot come and kill me everything is fine"
My dear, everything is not fine, Buhari and his economic policy will kill you and that your savings. The thunder and fire you sent to Buhari aren’t doing anything to him, but rather, it firing and burning up those savings you think you have in piggyvest and if care is not taken, the whole thing you have there will be worthless and valueless.
That 20% per cent inflation you heard about earlier and didn't understand, what it means is that the ₦1m you have in your piggyvest account, is in the process/have lost 20% of its worth or value, so in the real sense of it, the value of that money has dropped by 20% and you will be needing more to purchase something that was previously worth ₦1m and that is the reason why you get to the market tomorrow to buy something you thought was ₦1m and the seller will whisper to you that
“Sir/Ma, the price has increased, it’s now ₦1.2m”
You shout “Jesus”, sorry Jesus isn’t responsible for your woes, Buhari is, and rather than look for a way to curse Buhari a second time you should be concerned about saving your hard-earned money from inflation.
According to economists, Inflation is the rise in the price of goods and services in an economy. The last time you wanted to buy a cup of rice and the seller said it is now ₦250 rather than the ₦200 you bought the last time, that’s inflation speaking.
What are the causes of inflation?
Economists have divided the causes of inflation into three major groups;
Cost-Push Inflation
Demand-Pull Inflation
Expansionary fiscal policy
Don’t get terrified of the name, I will explain them now.
Cost-push inflation occurs when prices increase due to increases in production costs, such as raw materials and wages. The demand for goods is unchanged while the supply of goods declines due to the higher costs of production, so the price of the goods goes up.
Demand-pull inflation can be caused by strong consumer demand for a product or service. When there's a surge in demand for a wide breadth of goods across an economy, their prices tend to increase
Expansionary Fiscal Policies are government tools to stimulate the economy by increasing government spending. Simply put, the government is increasing the money in circulation to boost the economy, or the government is printing tons of money to fund its budget or projects.
In Nigeria, Cost-pull inflation and expansionary fiscal policies are to be blamed for our inflation woes, the cost of production is always going up due to our poor infrastructures, exchange rate debacle and did I forget to mention, CBN has been on a naira printing spree since 2015, they have printed about ₦15trn, loaned to the Nigeria Federal Government who in turn has embarked on numerous giveaway. How will such currency have value?
Now, what are the effects of inflation?’
Although there are a lot of debates about the macro effect of inflation on the general economy, there is a widely accepted consensus on its effect on saving, inflation will ruin your savings.
Let’s go back to the ₦1m you have in your piggyvest, it is seeming like “big” money to you, it can buy two of your favourite phones now, by the time you come back to that money in five years, that same sum of money is probably struggling to buy just one of that same mobile devices, economists will say your purchasing power has reduced
To get the full effect of inflation, remember that time that your parents told you that they paid their secondary school fee and bought provisions with just ₦5, imagine someone decided to save ₦500 then and left it in some piggy bank, that was big money at that time, you could probably travel to the United States for holidays and come back with that sum of money but you will be struggling to get a proper breakfast in mama put restaurant with that same ₦500, Yeah, Inflation is that crazy
So, having understood the damning effect of this scourge, how does one escape it, there are a lot of answers that have been proffered; buy assets that appreciate i.e real estate but most of us young ones don’t have the capital to be invested in such space.
What do we do?
It’s very simple, SEEK RETURNS
Seek returns with your saving, don’t just leave your money/savings lying fallow in a bank account somewhere earning meagrely returns, seek healthy returns, If you going to have long term saving plan, you should be looking for places to put your money where it can earn proper interest and compound, and talking about interest, your primary goal is looking for one that beats the current inflation rate of any currency that your saving is domiciled. If the inflation rate is 20%, you are looking for an investment that will deliver 20% per cent in return for interest, that way, you keep the value of your money.
Are there a safe investment that delivers returns like this, absolutely yes, this is where our generation got it lucky, most of our parents and grandparent didn’t have access to investments that will make them safeguard their money from inflation and they could not help but watched their saving become valueless.
Now the investment space has been democratized, we have access to a whole wide range of investment options; you pick can pick healthy stock on the Bamboo app, if that if seem stressful for you, there are exchange-traded funds (ETF) that bring stable returns every year(VTI ETF and S & P 500 has made a good return over the last ten years) if that also seems too complex, there is Risevest app, just load up your money in there and go to sleep, their whole purpose of existence is to help your money beat inflation and good Lord! there are cryptocurrencies that will outperform any assets on this planet in the next 10-15 years if you can stomach the risk and back the solid projects. There are no excuses if you allow your savings to go up in flame because of ignorance and inaction. Inflation is real and it is after your savings to burn it and make you poor, seek returns.
I'm really not a fan of reading any posts that are long, but as always, it's a pleasure drinking from the wealth of knowledge that is Marvelous's Mind!
And in such Simple and understandable terms at that!
Thank you for these priceless enlightenment you constantly bring my way!