Money Illusion

Brain science shows that our flawed human brain is often oblivious to the corrosive effects of inflation. Most people don’t realize it, but inflation can be both a good and a bad thing. Inflation means fixed-rate loans (like home loans) will be less expensive as time goes on; however, saving for the future will require substantially more than most people think.

The expenses where the money illusion tends to trip us up: saving for future big-ticket items like college education, retirement, home downpayments, and elder care.

After decades of low inflation, many leading economists predict interest rates will rise in the coming year. Don’t fall for the money illusion. Inflation should be an important factor in all your long-term financial calculations.

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