Teaching Kids About Inflation

Children are pretty smart. They pick up on things you'd never expect them to, like when you swear under your breath, barely audible to their little ears. But they also can pick up on the general meaning behind some pretty complex financial definitions, like inflation. Let's look at the ins and outs of inflation, through a child's eyes.

Inflation

First, let's quickly redefine inflation so that we're on the same page. In general, inflation occurs when the cost of goods and services goes up. In general, this is good for our economy (in low, steady percentages such as 2 to 3%) because it gives businesses the ability to hire new employees, and the new employees can put money back into our economic system.

Inflation to Children

That's a pretty complex part of finances for little people, so they may not comprehend the entirety of inflation right away. However, you can introduce inflation in small tidbits, like showing kids how inflation affects purchasing power over time. Let's look at this more in depth, age by age:

• Three- to six-years old:Kids may not be old enough yet to grasp inflation, but you can play games with them that will set a basis for the value of money. Let's say you play grocery store. When your child goes to "purchase" a plastic food product from you, you can tell them they need to give you more money to purchase the item, introducing them to the value of money and the beginnings of inflation.
• Seven- to ten-years old: Here, children may be able to understand inflation, and giving examples while you're out can help them really figure out the meaning. Say, for example, that the base price of bread at the grocery store increased. You can say (in the most basic terms), "Bread cost $1 last week, and this week, it's $1.50. Must be inflation at work!" As they get older, you could further this definition.
• Eleven- to fourteen-years old: Now you can introduce inflation's deeper meaning. When your child learns about the economy in school, the opportunity may present itself in a homework question. If not, you could mention inflation again at the grocery store and take the time to explain that because the price of bread went up, the bakery may be able to hire more employees.

Even though inflation is not the simplest financial definition, it is pretty easy to explain to children at any point in their lives. Taking the time to show kids that prices increase over time can help them later in life as they contemplate beginning their own Fortune 500 companies or analyzing the health of prospective stock investments.

Photo Source