Tuesday, August 1, 2017

Teaching Our Children About Inflation and Debt

Teaching Inflation
I watched a documentary recently that described the impact of inflation on the price of homes.  I put the data in a chart to share with you.
Yes, these numbers are good numbers.  I learned recently that the average price of a new home in Prosper, Texas, is $500,000.  What is scary is that our children will live to see the 2065 house price of $4.5 Million and our grand-children will live to see the 2115 house price of $45 Million.  The driving factor for the rise of house cost is inflation.  If you know the formula, you can determine that it is an inflation rate of 4.7% that makes housing go up ten-fold in 50 years.

Right now one U.S. dollar will buy 111 Japanese yen, so the yen is worth less than one U.S. penny.  Clearly, the dollar our grand-children receive in their salaries will be worth one penny in today's dollar.  Our currency will be like the Japanese yen.  Here is a statement from 2015: "The average price of a newly constructed house listed for sale in the Tokyo 23 Wards in May [2015] was ¥62,710,000."  That is 62 million yen for an average house in Tokyo, Japan, so 45 million dollars for an average American house in 100 years makes sense, aside from the mathematics.  (I was asked in September 2018 what ¥62,710,000 meant, it means $600,249 for the average house in Tokyo while the average price of a house in the U.S. is $188,900 in September 2018.)

We need to educate our children about inflation because the government is a major contributor to inflation.  Here is what Milton Friedman said about inflation:  "Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output."  Only the government controls the money supply.  And the government loves inflation because it is a hidden tax.  Most people do not understand inflation, making theft through inflation like stealing candy from a baby.  Our government will continue robbing us until we make it stop.  If we or our children cannot put the brakes on inflation, it will be too late for our grand-children to make a difference.

Teaching Debt

This article,  Student Debt Gets Attention of States by Melissa Korn, Wall Street Journal, July 12, 2017, has these quotes:

Study after study shows that college students are terrible at keeping track of how much debt they are racking up in school, so states are working to make the cost of higher education crystal clear.  This month, Florida joined Indiana and Nebraska in requiring that colleges and universities provide detailed information about student debt and projected loan payments.

A 2014 Brookings Institution report found about half of all first-year students in the U.S. “seriously underestimate” how much debt they have, and less than one-third can estimate their debt loads within a reasonable margin of error. Many also don’t understand that their financial aid is in the form of a loan. More than one-quarter of students with federal loans reported having no federal debt and 14% said they didn’t have any student debt at all.

It is we parents who are responsible for teaching our children about debt and for guiding them though the college loan process.  When state legislatures dictate colleges must prepare reports for individual students, then the legislators create more costs that increase tuition bills.  College tuition has been rising sharply because of all the reporting requirements forced onto colleges by legislatures.  And we have to foot the bill for all the overhead and administrative costs for these reports.  A Nanny State is an expensive state.


We work for money and inflation waters down our money, which is a form of theft.  Debt reduces the amount of money we are free to spend.  Inflation is bad and debt is dangerous.  This fits into a fortune cookie.  We need to fit this into our kids' minds.


Previous articles:
Teaching Our Kids About Interest and Inflation  April 11, 2015
Debt is Dangerous October 20, 2015

Film Reference: The film Agenda 2 by Curtis Bowers had the illustration on inflation of home prices.