Inflation is the persistent rise in the prices of goods and services over time. It is a powerful economic factor that can greatly affect individuals and households. Catholic Charities’ Executive Director Mike Donoghue states, “Inflation affects the varying socioeconomic groups differently, and its impact on the poor, including the working poor, can be particularly severe due to their limited financial resources and increased vulnerability.” This impact is significant and broad, but the agency a unique program to provide a “hand up” to those struggling individuals.
Inflation diminishes the purchasing power of money over time. The same amount of money buys fewer goods and services. For individuals living paycheck to paycheck or relying on fixed incomes, such as pensioners or those on welfare, inflation diminishes their capacity to afford necessities like food, housing, and healthcare.
The prices of essential goods and services, such as food, fuel, and housing, often rise faster than incomes during inflationary periods. This disproportionately burdens low-income households, as a larger percentage of their income is allocated to necessities. As a result, these households may be forced to cut back on other expenses, dip into savings, or take on debt to meet their basic needs.
Low-income individuals often have limited access to assets, such as stocks, bonds, or real estate, that can help act as a buffer against the impact of inflation. These households often have minimal savings and financial safeguards to cushion the impact of inflation or unexpected expenses. Without these options, they are more vulnerable to the negative effects of inflation on their savings and may struggle to recover from economic downturns exacerbated by inflation.
Many low-income households incur debt to cover expenses or emergencies. Inflation can increase the real cost of debt, making it increasingly difficult for these individuals to repay loans or credit card balances. This situation can lead to a never-ending cycle of debt and financial insecurity, further exacerbating their economic hardship and ability to make ends meet.
Inflation often increases wage inequality because the wages of low-income workers may not keep pace with the rising cost of living. As a result, hard-working individuals with lower incomes may struggle to pay their bills and see a decrease in their overall quality of life.
Inflation can also affect the cost of healthcare and education, essential services that are particularly crucial for low-income families. Rising healthcare costs can strain already limited budgets, while inflation in education expenses can make it more challenging for low-income individuals to access quality education and skill-building opportunities.
During periods of inflation, every dollar buys less than it did before, eroding purchasing power, affecting savings, and impacting overall financial well-being. “Financial literacy is always an important tool for our clients. However, in hard economic times when inflation is high, the importance of financial literacy cannot be overstated,” states Donoghue. “It is one of the reasons why Catholic Charities offers two financial literacy programs, one in Danbury and one in Norwalk. We have seen how crucial financial literacy is for the long-term success of our clients.”
A mother and her children are pictured with their new, used Honda Pilot. The mother was eligible to apply for a special car loan through the Family Loan Program of Danbury.
Financial literacy gives clients the knowledge and skills they need to make informed financial decisions. Understanding inflation and its implications is a fundamental aspect of financial literacy. Promoting financial literacy is essential for empowering individuals to successfully navigate inflationary environments. Catholic Charities financial literacy programs are vital in giving individuals the knowledge and skills needed to make informed financial decisions, particularly in the face of inflation.
Education is at the heart of the agency’s Loan and Financial Education Program (LFEP) in Norwalk. “We help our clients budget and plan for the future by providing basic financial education in a caring and respectful manner,” explains Diane Barston, Program Manager. “We work with our clients one-on-one to develop a personal budget, provide tips on how to save money based on their current spending, and offer resources to reach their financial goals. A foundation in financial literacy enables individuals to adapt their budgets and make informed decisions to alleviate the impact of inflation, and plan for their future.”
Inflation can influence borrowing and debt repayment. It is important for the agency’s clients to understand the implications of inflation on the real cost of debt. Catholic Charities teaches clients to consider factors such as interest rates, loan terms, credit card agreements and economic forecasts, to help minimize any long-term impact on their financial stability.
Working with the LFEP, the Family Loan Program (FLP) in Danbury offers low interest loans up to $10,000 to qualified applicants. Loans may be used to purchase a used car for transportation to work, repair a car, or assist with security deposits and childcare costs. Loan amounts range from $500 – $10,000 with a fixed 5.5% interest rate, regardless of a client’s credit history or credit score. Sarah Lynch, Program Manager of FLP in Danbury states, “Financial education provides our clients with tools for self-sufficiency, ensures loan repayment, and assists with positive credit building. By providing individualized financial literacy, we can empower individuals to navigate inflation and achieve greater financial resilience and stability.”
To learn more about Catholic Charities’ Family Loan and Loan and Financial Education Programs visit www.ccfairfield.org/familyloan.