Childhood Allowance: Inflation Gauge

Economics, along with Chemistry, Physics, and other Science and Math subjects are one of the most sought after subjects in the country if you want to have a fit of headache or want to sleep in class.

I've only met a few people in my life who can honestly and sincerely say that they rather enjoyed these classes. I've met fewer teachers who made these subjects interesting. Most of them just talked to the blackboard and lifted materials from the textbook.

Thankfully, there's the Internet and there are loads of books that explain these topics more interestingly. Perhaps not listening to your teacher gave birth to the book industry's "guide for dummies" series of books. Watching CNBC and Bloomberg also helps. So it's not entirely true that the television is an idiot box.

Recently, I had my hair cut and I was given a kiddie magazine to read. I suppose it was randomly given to me and it did not mean anything. In a short article contained in the magazine, there was a topic on the amount of allowance kids these days get, compared to what their parents were getting in the past.

That got me thinking.

Kids these days supposedly get about 150-250 a day. It sounds a lot to someone (like me) who received between 50-100 during my time. My parents had even "less", and most of the times, none, during their younger days.

At 250 a day, that's about 5,000 in a month. Even if we use 150, that translates to 3,000 a month. So assuming you have a child that's in high school already and your salary is about 25,000 - 30,000 (gross) a month, I'm amazed we Filipinos are still able to survive. Imagine, you still have to pay the tuition, your rent, utilities, etc. Frankly, I'm surprised some even have anything left to invest with.

If you don't read (or ignore) business news and skip on important data like inflation, just look at the allowance example. Your 50 pesos then is worth a third today (if your allowance is 150). Therefore, put another way, what you could buy for 50 pesos then, you have to pay 3x more today. Of course, this is just a simple straight computation. You can still purchase decent meals at about 50.00.

So how much of an increase in allowance (or inflation) was that? Assuming the climb in minimum allowance from 50-150 took about 15 years, that's about 13% annually. That's much higher than the inflation rate published by the government. If I'm not mistaken the average inflation rate is about 6-8% annually.

Of course, this simple computation does not take into account possible increases in spending power of Filipinos. For all we know, the increase in allowance means that parents today earn more than their parents a generation before.

So, while foreigners still look at the Philippines as a Third World, or, a Developing Country, in my opinion there is quite a substantial middle class in the country. However, the middle class are those easily wiped out during economic crises. They are also one of those who stand to benefit right away in an improving economy.

What's the relevance of inflation? As you can see, whatever you spend today, you will likely pay more for the same services a few years from now. Given this (frightening) set of numbers, I wouldn't be surprised to see children receiving 500 a day in my lifetime.

You also have to think about yourself. If you want to retire respectably and be able to afford future expensive healthcare expenses, then you better start saving... and investing for the future.

Going back, as you can see, you don't have to have an economics degree or any degree for that matter to know about critical information that directly affects your money.

Learn how to use your common sense. Unfortunately, common sense is not taught in school. It's taught by your parents and brought about by the experiences you go through. Too often people tend to stick to textbook style thinking and problem solving, failing to see that problems are simple if you just use a little bit of common sense.

So if you use your common sense, then you'd know that saving now is better than saving later. Further to this, it's better to invest now, than saving now. Ciao for now.