What is Inflation? and the Risk of Not Investing.

Investing is a risk, but it is even riskier not to invest. Why? Because of inflation.

The last time I heard about inflation (and I never thought I’d be hearing it again) was when I was still studying Engineering Economics. It means the increase in the prices of commodities thus reducing the buying power of money. To make it simpler, the price of 1 kilo of rice 20 years ago versus the price of it now is inflation.

Then why is it a risk not to invest?

1. Every day we are losing money. From trading economics, the average inflation rate of the Philippines since 1958 until 2012 is 9.10%. An example would be: Say you go to Mcdonalds and you have 100 pesos in your wallet. You buy a value meal worth 100 and you eat happily. However, next year, the same value meal now costs 109 pesos and your 100 pesos can no longer buy it. Every day, unknowingly, we are losing the buying power of money because every day, prices are going up.

2. We have negative savings. Most of us are saving in the banks. But have you ever asked how much is the interest rate of your savings? I bet you didn't care. Major banks give less 1% per year and a maximum of 4% in time deposits granting you have a large chunk to deposit. But again, inflation is at 9%, that means you are gaining 4% and losing 9%, do the math and you have a -5% value of your money. That is why, we Filipinos work so much (yeah, we are hardworking people) but still feel that there is this invisible force pulling us down. That is inflation. No matter how we save, there is no progress if we have a negative value of our money. 

3. We have no control of inflation. Whether you like it or not, prices will go up. It will never go down. Face it. It's like tax, we have no control of it. Most people don't understand this, they go rallying on the streets demanding a decrease in the prices and whatever, face it that doesn't work that way. 

The only thing we have control of is financial education. We have to be financially educated. We need to know where we can put our money that could fight inflation and that is why there is a need to invest. Saving is good, but not enough. Invest. 

There are financial services out there that could earn you an average of 8-12% per year beating inflation. It exists. However, Filipinos as we are, we hate the financial industry. We are fearful.We love to close down all the financial companies. But this I tell you, just like eating, investing is a need. If you go to a restaurant and you don't like the food, it does not mean you will no longer eat for the rest of your life. You go look for a better restaurant, simple. Same thing with investing, there are good financial services out there, and all we need is real financial education to know where to invest. 

Investing is risky, but not investing is even riskier because you are sure to lose with inflation.