Money Matters: Exploring the Psychology of Inflation

Money Matters: Exploring the Psychology of Inflation

Inflation is the increase in cost of the basic necessities, due to pandemic a very big consequence was faced by many companies. Inflation has an impact on the psychology of a person like it can affect the personal satisfaction of a person. It’s a field that investigates the concepts related to inflation.

Inflation Psychology

Inflation is the term for an increase in prices that eventually results in a decrease in purchasing power. It can also be said as the rate at which purchasing power decreases due to increase in average prices of basket of goods and services over time (Fernando, 2023).

A state of mind which in turn leads to consumers spending more quickly in the belief that the prices would rise. Many people buy things and spend more money immediately if they feel that shortly the prices are going to increase (Team, 2021).

The thinking behind this strategy is to make the consumers believe that they can save money by buying the product immediately than later. Inflationary psychology may become a prophecy of self-fulfillment, as the consumers save less and spend more, the increase in velocity of money is seen which boosts inflation and contributes to inflationary psychology (Team, 2021).

Inflationary psychology essentially refers to the apparent positive feedback loop between consumer expectations and rising prices, leading to a continuous increase in prices in the future. Different economists like Keynesian and Behavioral economists describe inflationary psychology differently. According to Keynesian economists, inflationary psychology is considered in terms of irrational animal spirits or more-or-less waves which are irreducible with respect to optimism or pessimism. Whereas behavioral economists describe it in terms of cognitive biases like availability bias, etc. (Team, 2021).

Reasons which contribute to inflation

It is important to know and have an insight into the role of the economy, but it is equally important to understand inflation does not only have an economic perspective. Solzhenitsyn critiqued the Western outlook and also determined the failings amongst people which leads to increased inflation. He gave four major reasons for the sordid situation, which are:

  1. Pursuit of material well–being
  2. Human rights
  3. Absence of personal responsibility
  4. Unwillingness to sacrifice for the common good

According to him, these reasons are connected with the economic problems and specifically with the inflation phenomenon (“Psychological Pressure Due to Inflation: Money on Our Mind,” 2019).

Impact of Inflation on Psychology in Developed and other countries

According to research, inflation decreases the standard of living by making it harder to meet one’s fundamental necessities, increases drug use, and affects the ratio of crimes. The article titled “Psychological Pressure Due to Inflation: Money on Our Mind” published in 2019 considers inflation as a psychological stressor.

People have been experiencing psychological depression, tension, anxiety, and problems as a result of inflation It also makes an unrested situation because the basic commodities are not affordable, which in turn leads to stress and strain. It further tends to be expanding suicidal tendencies and also creates a feeling of hopelessness (“Psychological Pressure Due to Inflation: Money on Our Mind,” 2019).

The developed country’s population like America also has a fear of financial emergencies, even having good welfare schemes, health care systems, provisions for pensions. Western Europeans have a fear of being homeless because of inflation. A rise in drug or alcohol-related deaths as well as suicides is a result of this (“Psychological Pressure Due to Inflation: Money on Our Mind,” 2019).

Tips to cope with inflation as a consumer

Some strategies can tackle inflation. These coping strategies are as follows:

  • Determine the effect of inflation on you: Keep track of your expenses regularly to understand the pattern of how it is affecting you. Inflation does not affect every individual in the same way.
  • Define a monthly budget: Keep a monthly budget with which you will not spend money on unnecessary things. Add all the necessary commodities into the budget.
  • Look into ways to reduce monthly expenses: You will be better able to determine which expenses you may remove from your budget that are not absolutely necessary once you start keeping a monthly budget.
  • Saving money on groceries with meal planning: Plan your meals properly and the preparation of the ingredients beforehand.
  • Buy staples in large quantities whenever possible: Shopping for staples in large quantities can save a lot of money. These staples can be all types of dry ingredients and grains, etc.
  • Join resale marketplaces: Join marketplaces where you can sell your old books, furniture, tools and even buy at a discounted price.
  • Put stuff to work for you: If selling things cannot be a good option for you, you can try giving some of your stuff for rent through secure platforms like your car or parking space or keeping a paying guest, etc.
  • Keep a side job in mind: All individuals have different circumstances with respect to job, but if you have spare time in which you can work with your skills and earn through freelancing, giving tutoring to juniors, selling notes, doing a creative writing job, etc.
  • Take advantage of coupons, credit cards, etc.: Taking advantage of credit card rewards programs, cash back incentives from online payment platforms, and using coupons while buying anything can help spend less money (Planted, n.d.).

Leave feedback about this

  • Rating