This is my first time on this forum although I've been on other forums for almost ten years. Here is an excerpt from an article written by Liz Pulliam Weston on the MSN site. She wrote a piece entitled, "Lessons Learned from the Days of 13% Inflation" - link provided below.
PAM Who hurts, who prospers
Since so many of us have never dealt with serious inflation, and the rest of us are out of practice, it's time to review the basics: who wins, who loses and how best to cope. When inflation starts eroding the purchasing power of the dollar, the folks most at risk include: People on fixed incomes. Your Social Security and disability checks may have a cost-of-living increase built in, but those typically lag the actual inflation rate, which can spell some tight times. People living on income from CDs and other cash savings may see their yields climb, but again at less than the inflation rate. "The purchasing power of their principal will be eroded," said Ray Benton, a financial planner in Denver. "And rising interest rates … generally do not keep up. Typically, real returns turn negative on fixed-income instruments." The poor. The less money you make, the more of your budget is spent on basics like food, shelter, clothing and transportation, and the less flexibility you have to deal with rising prices. Holders of long-term bonds. Rising rates drive down the value of older, lower-paying bonds. The longer the term of the bond, the bigger the hit it can take. People with variable-rate debt. Interest rates aren't fixed on most credit card and home-equity borrowing; many mortgages have adjustable rates as well. That means rising payments.
The winners? Folks with fixed-rate debt, which gets easier to repay with ever-cheaper dollars, and those who have investments that can beat the rate of inflation. |
