Explaining Inflation to Kids

Explaining Inflation to Kids

Turn on the news or sit around any dinner table, and it's likely there will be a mention of inflation, gas prices, or the increasing cost of groceries. Helping kids understand and navigate complex concepts like inflation in an age-appropriate way is an important component of financial education, along with introducing debit cards for kids and other money topics. In fact, breaking down how inflation affects our daily life can teach kids valuable lessons on how to make spending and saving decisions in leaner times.

 

So how do you provide an inflation definition in a way that isn't confusing or boring? Here's a quick game plan for having this important money conversation with kids.

Explain inflation rate in terms they can understand

Here's a simple inflation definition you can use: Inflation rate is how much prices rise or fall in a given amount of time. So if you hear something like inflation is 8%, it means that prices are 8% higher now than at the same time last year.

 

For kids who haven't quite mastered percentages in math class yet, switch to real dollars to show that something that used to cost $5 is now $5.40. From there, paint the bigger picture. While a few cents more might not seem like a big deal, explain that if everything you buy increases at the same rate, your purchasing power goes down.

Discuss how inflation affects our daily life

Here's an example you can use: Say your kids like to treat themselves to $5 worth of candy at the dollar store once per month, using their allowance. Now because of inflation, the candy store has increased its prices to $1.25 per candy, instead of $1 each.

 

Illustrate that now the kids have a decision to make: They can either spend an extra dollar of their allowance to get the same five pieces of candy, or they can choose just four pieces and stay within their $5 budget.

Illustrate the impact of inflation on your grown-up budget

Finish off your lesson by explaining that just like their candy dilemma, you have to make a whole bunch of these decisions every day in order to pay for the things your family needs. Explain that what you can afford to spend on groceries and gas per week doesn't go as far as it used to. A leaner budget requires delayed gratification, making sacrifices, and some creativity.

 

Then, model some frugal behaviors, like incorporating meatless meals that cost less, carpooling with friends, or using apps to find coupons or cheaper gas prices. If you've been working a side hustle to bring in more income to make up for the price increases, point that out, too.

 

When discussing how inflation affects our daily life, the ultimate goal is to demonstrate that despite tough economic times, with smart and strategic money moves, you can stay in remain in control of your finances.

 

Teach kids early to make smart money choices with GoHenry's debit card for kids and the fun, in-app education suite Money Missions.

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Written by GoHenry Published May 9, 2022 ● 2 min. read