Topic: What is The Negative Effect of Inflation on Household Savings? - page 5. (Read 993 times)

When you are holding anything you consider of value;  fiat, Bitcoin, gold, cars, silver spoons etc. you are already investing in something that has a value which goes up and down. And during inflation, fiat is the investment which loses value. So obviously it is smart to come prepared and know what else you can invest your fiat into.

Or you can diversify and not have to worry about one thing. But as a rule of thumb, you should expect most of your investments to go down during inflation. There is no need to fear it. It has happened and will happen again. But that does not mean it will last forever.

If your intention is just to preserve the value of your holdings then investing on the bonds or even digital gold is the right option but when are talking about investment it does give more returns but at the same time it adds the risk of losing your capital value so only who wants to press that pedal should go for investment or else they should stick with savings but not in anything that is affected by inflation.

While bonds are really one way to increase the value of your money. Check the ROI if it's enough to cover the yearly inflation because if the percentage or rate of the bonds isn't that much, it's just best for you to take more risk and invest in the crypto market which is done by many. And as you can see, many are happy this time and it's now more than the inflation rate that we're having to tackle. For the traditional investors, as long as you're able to deal with it and you're not sleeping your money in the banks. All you need to do is to put that in investments that there's a potential growth.

At least 5%-10% annually is good enough. Banks will give you 1%-5% of APY and that's not going to be enough as there will be taxes after that. So, in short, you are still not able to defeat inflation as the purchasing power of your money have increased but it's in a bit. Hedge your money against inflation and either use it on your businesses too if you've got enough investments. Although don't forget to save money still but the purpose of that is to be used as your emergency fund that you can easily liquidate in the times of dire need and this is a common thing for most folks globally.

silicon valley bank invested in bonds........... and its gone

Why would I invest in bonds if I can get more bitcoin?
My parents used to have some money invested in a bond tracking ETF and that thing was barely making them 10% a year, but then you had to pay taxes... You were maybe left with 8% in a good economy, but that wasn't guaranteed since there were bad years where it would only made 5% and that's with 4% inflation...
I was the first person in my family to get bitcoin back in 2014 and it literally outperformed the whole lifetime of my parents in 10 years. Both of them together did not save up as much in 50 years of full time employment as I did by holding bitcoin.

household savings are not suppose to be a huge pot of wealth, where by inflation loses you notable buying power..
also even if inflation was say 6% thats only 0.5% a month

so think about whats the biggest expense that will surprise you
EG month rent, a kitchen appliance failure.

things that if they failed or something happened would cause immediate stress or issues
thats what should be in savings (rescue pot) thats easy access without loss if withdrawn instantly

EG if its $1k/$2k then over a years 6% inflation is a value loss of $60-$120 a year on a 0 interest account.. which means just putting in an extra $5-10 a month to top it up to current inflation value of goods/emergency cover

as for planned accumulation for future spending. you can put that into accounts that offer better interest. some come with stipulations like only X withdrawals per year or locked in for a year

as for just accumulating for wealth. then invest. knowing you dont need to touch it during bear markets because the savings pot rescues you in times of surprise emergency

Do savings stay when there is high inflation? I mean, when the prices of goods keep going up and if one cannot fulfill all their needs with their current income, they will be compelled to use the money they have saved so far so that they don't starve to death or face a lot of problems in their lives.
Even if they don't use the money for food and basic living necessities, as you said, the money will either be eaten from taxes or will lose purchasing power which is also equivalent to losing the money in its actual sense.
When we talk about investments, people need to be careful where they are investing their money because there are a lot of scams looking for vulnerable people that are looking for a place to safeguard their funds during bad economic times.

Yep, inflation can affect your finances. I also strongly support investing in bonds during periods of decreasing inflation. Because IMO, the central bank will often reduce interest rates, leading to an increase in bond prices, and it is a relatively safe investment channel with stable profits.

But it is also necessary to adapt to the economic situation as well as improve many skills as well as tighten spending, choosing investment channels that suit your risk tolerance and financial goals. We (not all) are affected by the economic impact, understanding the effects of inflation and taking appropriate measures can protect our finances and maintain our standard of life good.

If you live in a country where your local currency is not stable, meaning that the currency is devaluing then it's best not to leave your money in the bank, because if you do, the amount will still be the same, but the value of the money will be drastically reducing. If you withdraw money from the bank to make purchases, the same amount will keep purchasing lesser items everytime, so the account owner must find a better alternative to secure their money.

As far as I know and with crypto knowledge that I have, the best place to save your money that'll double as an investment for you is to hodle Bitcoin, it's a valuable asset that will keep increasing your capital, only that you need to hold it for a long term to be able to enjoy it's ROI. Alternatively the person can convert his money to stablecoins, to avoid inflation. Bonds are good, but I can only give advice on cryptocurrency areas that I'm knowledge.

With the present economy situation, we may have our decision for making savings but holding them in fiat could be one of the greatest mistake we may do because fiat depreciates in value over time and inflations its first killer, than when we make our savings in bitcoin and hold for some time for the value of the coin we are holding to appreciate instead of fiat depreciation over time.

There are multiple ways to beat the inflation. I won't go into that but I will rather tell you how you can beat inflation.

If you are considering only real world assets excluding cryptocurrency, then you should be choosing stock market and gold. In stock market try choosing either small cap or midcap or a mix of those. Historically these stocks have shown immense growth. But I can't deny that a risk factor is also there.

On the other hand gold extreme resilience against the financial ups and downs. If you want capital protection along with growth, you should choose a fair percentage of your portfolio in gold.

Avoid any kind of bank deposits.

I am living in a country that is suffering from double-digit inflation. The price of goods and services has skyrocketed and our local currency has lost almost 89%/ of its purchasing power. Many people are migrating to the Western world because of economic hardship. I will not invest in the bonds of a government that cannot manage the economy, I prefer investing in Bitcoin. Bitcoin has proved to be a sound hedge against inflation, therefore recommending it is not a bad idea. People will always use the volatility of Bitcoin as an excuse for not including it as a means of shielding money from inflation but some country's currencies are even more unstable.

It is true for sure, I mean inflation is a huge problem around the world and it is just because of the broken system in the government, there was nothing really that we can do about it because we are run by the government, so as long as they wanted to they could easily print money as long as they wanted to which has a huge effect on as that we called inflation, because of the fiat money infinite supply the value of fiat money could easily go down and it could continue as long as its increasing its supply.

There are still some things that we could easily do to avoid inflation like for example investing in Bitcoin or Cryptocurrency, or maybe we could put our money on gold, we the upward trend and limited supply we could fight inflation even though it wasn't for sure a guarantee investment, but in theory due to its structure with limited supply or 21 Million we could easily assume that in the future the market value of it is gonna continue to skyrocket.

Still, fiat is still an important thing that we need and it has a value that we use in our everyday life, saving as well wasn't really that bad, in my opinion, what important is our mindset, having the financial mindset is the thing that we really need in order to achieve financial freedom in life, as long as we have the poor mindset like for example keep on buying things that we dont really need and we can't really afford there was no way that you could ever achieve financial freedom in life.

The negative effect of inflation on household savings is that it erodes the purchasing power of money over time. When inflation rises the value of money decreases meaning that the same amount of money can buy less goods & services. This reduction in purchasing power reduces the real value of savings making it harder for households to maintain their standard of living & achieve their long term financial goals. Inflation can also discourage saving as people might need to spend their money quickly before its value further diminishes. Inflation erodes the stability and growth of household savings. I think it was Michael Saylor who said over time your fiat is like a big block of ice in warm conditions, it slowly melts away.

it is much better to save money in bitcoin or gold, because if you choose to save your money in banks, securities, bonds, or the capital market, there is a big possibility that it will be affected by the inflation that is currently occurring in your country. or if you try to take your money out to foreign markets, it is very likely that your country will impose restrictions on the flow of outbound transactions and you will not be able to access all your assets, and that is quite risky.

so bitcoin or gold is still the best choice when inflation occurs in your country.

Inflation significantly impacts household saving and buying power. With inflation comes the devaluation of money. Inflation has an inverse relation with savings; the higher the inflation, the lower will be the saving and vice versa. People living in high-inflation areas/ countries do not invest for the future. The same is true for stock investment in the future.
To beat inflation, one of the few options is to invest your money into stocks using a passive indexing approach. Buying Gold, Silver, or other precious metals might help a person overcome inflation.   

You can consult these research papers for further understanding of the topic.

https://www.bis.org/publ/work1152.pdf
https://www.sciencedirect.com/science/article/abs/pii/S2214635017301107?via%3Dihub
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3383452
https://rodneywhitecenter.wharton.upenn.edu/wp-content/uploads/2014/03/8111.pdf

Keeping money in your banks will definitely be affected by the inflation whenever it hits, instead of keeping your money just like that at home or banks, there different investment plans that's if you don't like Bitcoin investment, you can go into goods and services trading to earn more income for yourself, the economic situation currently has reshaped the thinking of individuals who has been found wanting in this exhibition, people should build the mindset of investment, if you look at the interest rate if banks you will be discouraged to keep your money in any bank, I have always have the mindset that banks benefit more than the people saving in their firm.

Just like I said, it all narrows down to what you think works best for you as some people opt to invest in bonds. I personally prefer investing in Bitcoin to bonds and securities.

I didn't say investing in Bitcoin requires high knowledge though, I just said the right knowledge and understanding. I don't think it's fair saying it requires basic computer security because we all have different levels of understanding, sometimes what I consider basic might seem very complex to you and on the other hand what you consider basic could be a very complex thing to me. I don't know if you understand my point.

For me, it's not an income if you invest your money in bonds, because the interest is only enough to protect your wealth against inflation.

To be honest investing in Bitcoin doesn't need to have really high knowledge or understanding, you only need to know the basic security and don't be greedy.

Just know the basic computer security, buy a hardware wallet, buy Bitcoin on safe exchange, don't participate or click anything that related to airdrop, giveaway etc, now you're already safe and don't need to worry about anything.

Slipped my mind I forgot, low returns on savings is also a consequence if the interest rates on your savings accounts or other fixed-income investments don't keep up with inflation, the real returns on those investments may be negative. Even though you're earning interest, the purchasing power of your savings is actually decreasing.

It'll prove useful putting these factors in mind and consider strategies to protect and grow your savings in the face of inflation, finding alternative ways of income could also help in some way, like investing in bonds and stocks I mentioned earlier. Bitcoin clearly has higher returns if you go about it with the right knowledge and understanding. At some point it gets to doing whatever works best for you and yields credible enough results for you.