Inflation isn’t a four-letter word, but the way that everyone from economists to TV pundits to politicians talks about it, it might as well be. Even if you don’t know exactly how inflation works, you’ve heard enough to be concerned about the sucker punch it could potentially deliver to your wallet. Still, you want to know more about why inflation should be such a concern, and you don’t want a lot of jargon.
Find Out: I Asked ChatGPT If a Recession Is Coming Soon — Here’s What It Said
Read Next: 10 Cars That Outlast the Average Vehicle
Well, your friendly neighborhood financial writer — that would be me — decided to conduct a thought experiment: Why not ask ChatGPT to explain it to me like I am 12 years old? Normally, I’d go to professional experts or do a more complete deep dive online, which is what you should do, given that ChatGPT is far from perfect. Still, it did give me a baseline explanation that anyone could use to build deeper knowledge.
Juice Boxes, Really?
OK, ChatGPT did not start off great because it invited me to consider buying my favorite juice box for its current hypothetical price of $1. When I was 12 years old, I was all about Polly Pocket like a discerning child. Anyway, ChatGPT continued its explanation by stating that if I have $10, I’m able to buy 10 juice boxes at their current price.
“Easy math, right?” ChatGPT responded. Que the “Jaws” theme: “But then… inflation happens.”
Check Out: 8 Smart Ways Frugal People Are Living Like There’s Already a Recession
What Is Inflation, After All?
For all the chatter about inflation, it’s very seldom defined in ways that the average consumer can understand. ChatGPT put it very simply: “Inflation means prices go up over time. So now, the same juice box costs $1.25 instead of $1.”
Given how important an accurate definition of inflation is to our overall thought experiment, I decided to go to other, more official sources to confirm. The International Monetary Fund (IMF) also defines inflation as the rate of increase in prices over a period of time.
“Inflation is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country,” the IMF explained. “But it can also be more narrowly calculated–for certain goods, such as food, or for services, such as a haircut, for example.”
Back to our scenario: Now the price of my beloved juice boxes has gone up, but I still only have $10. I can only buy eight juice boxes instead of 10.
“Same money, fewer juice boxes,” ChatGPT proclaimed. “That’s inflation hurting your wallet.”
Why Does It Hurt Me?
Well, in a nutshell, my money doesn’t stretch as far as it used to. I can’t buy as much stuff as I used to — whether it’s juice boxes, Polly Pockets or, when I’m a grown-up, other goods and services that aren’t as fun but essential — with the same amount of money.
“If you don’t get more money (like a bigger allowance), you’re basically getting poorer without doing anything wrong,” ChatGPT explained.
Instead of allowance, think of your salary (which is kind of an allowance for grown-ups). If your salary remains the same, but inflation drives up prices, you’re essentially looking at a juice box situation of your own.
So, What Do I Do About It?
That’s the $6 million question (or maybe more like $8 million question, these days). Learning how to stretch your dollar further should be a conversation between you and your financial advisor. But when I asked ChatGPT for a few suggestions, it gave me some ideas.
“Let’s say you keep $100 in a piggy bank. If inflation is 5% per year, then after one year, your $100 only feels like $95 — because everything costs more now,” it said. “When you’re older, use a savings account with interest (so your money earns more).”
Most likely, ChatGPT was referring to a high-yield savings account, which is a great way to make your money grow in savings. ChatGPT also recommended that I learn about investing, since the stock market usually grows faster than inflation. Again, this is something you’d want to review with an advisor, but as a personal finance site, we can confirm that it’s truer than not.
While ChatGPT should not be the be-all, end-all of your explorations into money matters, I did find that it gave me an easily understandable definition of inflation.
More From GOBankingRates
- 7 McDonald's Toys Worth Way More Today
- 5 Old Navy Items Retirees Need To Buy Ahead of Fall
- 4 Things You Should Do When Your Salary Hits $100K
- 5 Cities You Need To Consider If You're Retiring in 2025
This article originally appeared on GOBankingRates.com: I Asked ChatGPT To Explain Why Inflation Is Killing My Wallet Like I’m 12
