Inflation impacts different age groups differently depending on their financial situation and investments. Some assume that older people have more assets that do not appreciate in line with inflation, while younger people have more debt. In this context, they may be right that inflation redistributes wealth from the old to the young.
Impact of inflation on older people
Inflation erodes the purchasing power of money over time, meaning a dollar today can buy less tomorrow. So inflation negatively impacts people who are on fixed-interest saving instruments and bonds. This group often includes retirees, who might have saved money their whole life and now rely on pensions or savings in bonds to cover their living costs. Usually, pensions are not indexed to inflation regularly. So, the pension and bonds effectively lose value as inflation increases, meaning retirees can afford less and less.
However, this dynamic is not necessarily accurate for all older adults. For example, some older people have significant wealth that appreciates with inflation — such as property, precious metals and art. And a substantial portion of these older people might have opted not to have considerable exposure to the fixed-interest saving schemes and bonds in their portfolios. For these reasons, this specific group of older people do not participate in the redistribution of wealth from the old to the young.
Impact of inflation on younger people
On the other hand, younger people who have recently entered the job market or have more time to adjust their careers and earnings might be less affected by inflation. Also, people with debt, often younger individuals with mortgages or student loans, can benefit from inflation to a certain extent. This is because the real value of their debt decreases with inflation, assuming their income rises with or faster than inflation.
However, this dynamic is not necessarily accurate for all younger adults, especially those with low or stagnant wages or considerable exposure to the fixed-interest saving schemes and bonds in their portfolios.
Effect of sustained high inflation
It’s crucial to remember that sustained high inflation can have a severe negative impact on the overall economy, including increased uncertainty, reduced economic growth, and job losses. Moreover, these issues can harm people of all ages. So while it’s true that different demographic groups can be differently affected by inflation, sustained high inflation would negatively affect all demographic groups.
Related information
Refer to the related knowledge resources:
- An introduction to stagflation
- An introduction to US debt ceiling
- Impact of rising interest rates on a bond ETF
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