How Millennials Can Deal With Inflation

Did you see it?

Hasbro came out with a new monopoly game: Monopoly for Millennials.

On the front of the box is Uncle Pennybags. He’s holding a coffee cup, has earphones in and is wearing a participation award on his jacket.

Also on the cover is the line, ‘Forget real estate, you can’t afford it anyway.

The Australian Financial Review writes:

Instead of earning money as players do in the traditional Monopoly, players in this game collect experiences as they travel around the board.

The board features spaces like “three-day music festival”, “parent’s basement”, and “farmer’s market” and includes game pieces shaped like a hashtag and an emoji.

As a millennial myself, I thought it was hilarious. The game really captures the stereotypes of my generation’s culture.

Not everyone likes what they see in the mirror however. Jon on Twitter wrote:

Next, Monopoly for Baby Boomers: where you buy property for below value prices, only people of colour go to jail, and when you pass “Go” you get to complain about Millennials!!!

Trust a millennial to ruin some light-hearted fun…

Inflation is why millennial’s can’t afford homes

Inflation is coming.

That’s according to former head of the US Federal Reserve, Alan Greenspan.

I’m beginning to see the first signs of it.

We’re seeing it basically in the tightening of the labour markets first, which, as you know, have gotten very tight now. We’re beginning finally to see average wages rise, and clearly there’s no productivity behind it.

It’s easy to mistake inflation as a sign of good things to come.

When inflation is higher, it means there is growth. When inflation kicks up, central bankers also increase interest rates, which is a signal of a stronger economy.

But the growth inflation symbolises is not economic. It’s the growth of money outpacing the growth of new goods and services.

And central bankers don’t lift interest rates because an economy is getting strong (usually). They lift interest rates so that inflation doesn’t destroy household wealth.

For you millennials out there, this is why a lot of you can’t afford homes.

It’s not because you have an avo smash every weekend, although you might want to think about cutting it down to every other week.

Millennials can’t afford homes because money is still cheap, thanks to the Reserve Bank of Australia (RBA), and far too much money is circulating in a system with limited goods and services.

Hold on…isn’t inflation low? That’s why the RBA is keeping interest rates so low still. Aren’t they just creating more money so businesses can create new goods and services?

It does look that way.

Aussie annual inflation sits just below 2%. So if you’re holding nothing but cash, you’re getting 2% poorer each year.

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Not all price inflation is equal

But this average is not a true representation of what’s happening across the board. Much like a stock market generating a 10% return, there will be stocks within that market that go up by 100% and others that fall 90%.

The same happens to the price of goods and services.

As Visual Capitalist puts it, ‘not all price inflation is equal.

To demonstrate, take a look at a bunch of different goods and services in this US example, and how their prices have changed over time:


MoneyMorning 19-11-18

Source: Visual Capitalist

[Click to open in a new window]

 

While it’s not included, financial assets like stocks and bonds are among the risers.

An interesting question is why the disparity between TVs and university degrees?

One reason is because the government doesn’t subsidies TVs.

Like in Oz, tuition is one of the most subsidised goods in America. And because students are able to pay more for a degree (with the help of the government), universities price their degrees higher.

As a result, you get kids already in tens of thousands of dollars’ worth of debt right out of university. An easy way to make university cheaper would be to strip all subsidies.

While a kid might be willing to fork out $20,000 for a degree, I doubt they’d be willing to fork out a good chunk of $100,000 up front.

Most universities will either have to lower their prices or starve. It’s the magic of capitalism.

But let’s get back on topic, how might this all affect you as an individual investor?

What should millennials do?

In reality, I don’t think you should really fuss about where interest rates or inflation might be in the next quarter or the next five years…unless it’s something ridiculous like 10–15%.

What’s far more important are the businesses you buy from now on.

Yes, the market has dropped. And I think you will see even more declines shortly.

But all you have to do is find a couple of stocks. You just have to find a couple of gems with amazing prospects trading at bargain prices.

If you can find those opportunities and buy them today, the interest rate won’t matter. Inflation won’t matter.

Maybe instead of complaining about the new Monopoly or house prices, millennials should start looking for a couple of opportunities themselves.

Your friend,

Harje Ronngard,
Editor, Money Morning

PS: In this free report, economy expert reveals four ways you could cash in on the global infrastructure boom. Download now.


Harje Ronngard is the lead Editor at Money Morning. With an academic background in finance and investments, Harje knows how simple, yet difficult investing can be. He has worked with a range of assets classes, from futures to equities. But he’s found his niche in equity valuation. There are two questions Harje likes to ask of any investment. What is it worth? And how much does it cost? These two questions alone open up a world of investment opportunities which Harje shares with Money Morning readers 5 days a week.. Harje also contributes his insights in Total Income, headed by income specialist Matt Hibbard. Harje loves cash-rich businesses, so he feels right at home among Matt’s incredibly exciting income plays.


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