A Credit Union Perspective
As we write and publish this post we have seen the effects of inflation, and although the economy has improved throughout the last few years we know it is always there. You need to be aware of how inflation affects your money. Still, we want to focus on things that a credit union can communicate to its members to prepare for the next possible spike and for the expected inflation that occurs over time.
Inflation, the sustained increase in the general price level of an economy’s goods and services over time, can significantly impact household budgets and financial planning. While some level of inflation is normal, periods of heightened inflation can create financial strain for individuals and families. For credit union members, understanding how inflation affects their finances is crucial for making informed decisions and maintaining financial stability. This guide aims to explain the impact of inflation and offer practical strategies for navigating these challenging economic times, providing credit union executives with valuable talking points for member discussions.
One of the most immediate effects of inflation is reduced purchasing power. As prices rise, each dollar buys less, meaning members need more money to maintain their current standard of living. This can be particularly challenging for those on fixed incomes, such as retirees, whose income may not adjust quickly enough to keep pace with rising costs. Members may find themselves cutting back on discretionary spending, delaying major purchases, or even struggling to afford essential goods and services like groceries, gas, and housing. Credit union executives can play a crucial role by providing resources and guidance to help members understand the erosion of purchasing power and develop strategies to mitigate its effects.
Beyond the impact on daily expenses, inflation can also affect savings and investments. While some investments, like stocks and real estate, may offer some protection against inflation over the long term, the real return on savings accounts and other fixed-income investments can be eroded by rising prices. If the inflation rate exceeds the interest earned on savings, the real value of those savings decreases over time. Credit unions can help members address this by offering competitive interest rates on deposit accounts and providing access to financial advisors who can offer personalized investment strategies tailored to individual risk tolerance and financial goals. Open communication about the interplay between inflation and savings is vital.
For borrowers, inflation can have a more nuanced effect. While existing fixed-rate loans, such as mortgages, become relatively cheaper to repay as incomes may rise with inflation, new loans taken out during inflationary periods may come with higher interest rates to compensate lenders for the declining value of money. Credit unions can assist members by offering competitive loan rates and providing guidance on managing debt during inflationary periods. For example, consolidating high-interest debt into a lower-rate loan from the credit union can help members save money on interest payments and improve their overall financial health. This reinforces the credit union’s commitment to member well-being.
In light of these challenges, several strategies can help credit union members navigate inflationary pressures. Creating a realistic budget is paramount, allowing members to track their income and expenses, identify areas where they can cut back, and prioritize essential spending. Regularly reviewing and adjusting the budget to reflect changing prices is also important. Building an emergency fund can provide a financial cushion to weather unexpected expenses or income disruptions, offering a crucial buffer against the economic uncertainty that often accompanies inflation. Additionally, exploring ways to increase income, such as seeking a raise, taking on a side hustle, or developing new skills, can help members keep pace with rising costs. Credit unions can support these efforts by offering financial literacy resources, workshops, and counseling services. By proactively addressing these concerns, credit unions can strengthen their relationships with members and solidify their role as trusted financial partners during challenging economic times.
