Kristen Lunman is co-founder and CEO of Hatch.
OPINION: We are witnessing a perfect storm. But the only thing that doesn’t rain is our money a few days after payday.
We may not carry cash in our wallets, but our digital wallets are getting lighter by the day. Why? Because of inflation.
It’s the buzzword used by the media and in conversations with our family and friends. But how many of us are confident in our understanding of what this means and how it will shape our lives over the coming months, years and beyond?
More importantly, when inflation is on the rise, why does it amplify our need to discuss that money with our partner?
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Today’s inflation rates may be a confluence of the cracks that have started to appear since the Global Financial Crisis (GFC).
The GFC exposed weaknesses in global banking systems. Quickly follows intensified globalization, a system that pines its hopes on China, India and developing countries to supply the world with cheap goods, using cheap energy, but makes it increasingly difficult for countries management of bubbles and recessions.
Then Covid hit. And quantitative easing followed.
You will probably remember images of ships stacked with containers stuck in ports. With Santa’s sleigh stuck on the ice and not delivering the goods in time for Christmas. Labor shortages fuel wage increases, the costs of which are passed on to consumers. The massive end-to-end global supply chain problem that is set to continue through 2022. And with pet food disappearing from supermarket shelves. Yes, while we’re still shedding body lock, little Luna and Milo don’t think their diet is awful.
The result? Everything costs more. Inflation, measured by the Consumer Price Index (CPI), which tracks a ‘basket’ of items like milk, gas and haircuts, and compares what they cost now to the Last year and five or 10 years ago, simmers at a wet rate of 5.9 percent.
But you only have to look at your morning coffee to know that if it’s not counterbalanced, it’s soon going to have more bite than you ordered. Coffee beans are getting scarcer, milk is more expensive to produce, bottle and transport (thanks to soaring oil prices), and if that takeaway cup arrives on a slow boat from China and restrictions of Covid mean you can’t BYO reusable cup, prices will likely hit new highs in 2022.
A potential antidote has come recently. The Reserve Bank pulled its leverage and raised the official exchange rate (OCR) from 0.75% to 1%, a tactic aimed at raising interest rates and reducing inflation.
Higher interest rates mean people will have less disposable income and can choose to cut spending, especially on big items like cars and houses. Banks in Aotearoa had anticipated this rise earlier this year, raising mortgage rates. Some predict that these rates will climb even higher if the OCR rises from 1% to 3% over the next year.
Whichever end of the financial spectrum you sit on, high inflation can hurt. This depletes our savings, drives up costs and becomes unsustainable for low-wage, vulnerable and elderly people. It makes borrowing money more expensive or out of reach, makes Kiwi exports less competitive, and heightens business and societal anxiety at a time when we need it least.
What this means for you is that if you’ve been hesitant to discuss money with your partner (or even with yourself), it’s time to put your cards on the table and be clear about where you stand, where you are. go, and how you plan to get there.
You owe it to yourself to refine your understanding of how money flows and how you can make your stack work harder. So go on…remove the bandage!
Swell the talk on the silver pillow
Everything we see around us can be a transition into a conversation about money. It could be a Covid-related job loss (ask, are our jobs safe?), negotiating a new salary, or when an unexpected bill comes in that raises eyebrows and drives down accounts banking.
Now is the time to dig deeper, address concerns, and brainstorm creative and workable solutions.
Or if you’re planning a vacation, queue up if you’re going luxury or budget, tackle the big bucks like airfare and accommodation, and how much you need to set aside to meet your vacation goals.
And if you live together, give preference to the silver cat. The more you communicate, the easier life becomes.
From love language to financial personality
You may already know your love language, so it might be time to revamp your financial personality, thanks to Sorted.
Whether you’re a hedonist or a money maestro, knowing where you both stand can help you identify who is looking for savings and who is spending money. Or to get some insight into their dream life and values, ask them what you would each do if you won the lottery.
You’ll see if you’re on the same page or in an entirely different book. Take what you learn and learn to adapt and grow together.
Until the debt do us part
If you signed up to be on a team with someone as an equal player, you must bring your A game. You must know your own financial situation and have full access to your personal and joint accounts. Lift the lid on debts by removing emotion and talking about facts, then explain how you could make those debts go away.
For the richest, not the poorest
Budgets aren’t sexy, but they can advance financial goals. It’s healthy to share what you earn and be honest about your expenses.
A budget can determine medium and long-term goals and whether time deposits or investments can help you reach your destination. Have the KiwiSaver chat. Do you choose a growth fund for your retirement or do you opt for a generally less volatile conservative or balanced fund to build up your first deposit? Align your goals and set the milestones to get there.
Be financially loyal
Financial infidelity starts with a stash of secret credit cards, loans, hidden bank accounts, and hidden expenses, but can end in huge financial problems, stress, and debt collectors knocking on the door. It might even put an expiration date on the relationship.
Walk away from the what and look at the why, and be comfortable with being really uncomfortable. If you’re in it for life, a tough conversation is now the smallest price you’ll pay.
Do you have coverage?
No matter how much love you feel right now, change can hit the fan. A discussion about money can be an opportunity to prepare for a crisis and put your insurance online.
From sorting through your “rainy day” emergency fund to making sure your insurance coverage matches what you might need down the line. This might be a good time to discuss what’s available and evaluate trauma, critical illness, life and health insurance options to see what might work for you.
And think about your fur babies too, because there are some decisions you never want to make for money.
Whatever you do, don’t wipe your hands of becoming financially savvy. When one person in a relationship has all the responsibility, things can get very complicated, very quickly.
You’re in the same boat, so if you share bills, share your losses and gains too, and start building your life (and your wealth) together.
Hatch is not a financial adviser and this article is for informational purposes only. Hatch has done its best to ensure that all information is current at the time of publication of this article.