Youthentity column: Your finances — Small steps in the face of inflation
April is Financial Literacy Month. To kick it off, I’ll provide a few tips on how to make your money work for you.
Economics are undoubtedly complex. The economy changes frequently, and when it does, there is often such a range of reactions that it can be hard to tell if the change is good or bad. Rather than focusing on determining the status of the current economy, let’s zoom in on how it can help your finances.
One of the biggest factors influencing the state of the current economy is that we are still reeling from a pandemic that took the global economy on the rollercoaster ride of a century. As we emerged from lockdowns and social distancing, we were eager to once again fully enjoy life. The sudden increase in spending meant there was more demand for things that were restricted during the pandemic such as travel and entertainment. Coupled with persistent supply chain issues, this increase in demand has resulted in rising prices for many products and services, known as inflation.
I know, you’re probably tired of hearing about inflation. But hang tight, we’re almost to the good part about an opportunity that was actually created by inflation.
The Federal Reserve (Fed) is our central bank, and one of its main jobs is to keep inflation in check. To do that, the Fed has been increasing interest rates. The idea is that if interest rates are high, people will take out fewer loans to buy things like cars and houses, instead choosing to save money. As a result, banks have increased interest rates. This means that if you develop a strategy to save your money right now, you will be rewarded with even more money down the road.
Right now, High-Yield Savings Accounts (HYSAs) exist that are paying over 3% in interest. This is the highest rates have been since before the Great Recession that began in 2008. Saving money is always a good thing to do, but it’s especially prudent right now. One example: If you put $1,000 in a HYSA today with a 3% interest rate and left it there for a year, you would earn $30.42 in interest. If you put $1,000 in that account today and saved an additional $100 each month, you would earn $50.10 in interest.
If the Fed continues to raise rates, you can earn even more! No, it’s not going to make you rich, but that’s an extra $30 or $50 your money can earn for you. If someone walked up to you on the street and offered you $30 with no catch, would you take it? Sure you would.
When it comes to your money, sometimes it’s the cumulation of seemingly small steps and actions that can result in big rewards. No matter how much you can afford to save right now, put your money to work by saving it in a HYSA that has FDIC or NCUA insurance.
No one knows how the economy will play out in the coming months, but saving money is something positive you can do today that will not only earn you interest but also prepare your finances for the future.
Stephanie Stahle is Youthentity’s Financial Literacy Program Director and founder of Unpopularfinance.com. Youthentity’s financial literacy program delivers financial education to over 6,000 fifth and eighth grade students throughout Colorado, helping to ensure that students learn the critical financial concepts that shape their lives. Visit Youthentity.org to learn more.
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