Inflation Helps the Rich?
This question is for the people who have read the book "Poor Dad, Rich Dad," by Robert Kiyosaki.
In his book, he states that inflation actually benefits the rich while making the poor even more poor. How is this so when inflation makes money worth less?
- easymacLv 41 decade agoFavorite Answer
The first answer is more on track.
First of all, inflation hurts savers and helps borrowers. Think about it this way: let's say there is currently an inflation rate of 10% per day. You borrow $10 from Jim and he says tomorrow you have to pay him back $11.50 (15%, so he is getting a real interest rate of 5% over the 10% inflation rate). You immediately take your $10 and buy a book with it. However, let's say the inflation rate increases to 20%. Now, your $10 book is worth $12 ($10 + 20%), and you still only have to pay Jim $11.50 tomorrow. In effect, the increased inflation saved you money in that you don't have to pay back your loan in as many (what we call) real dollars.
So how does this benefit the rich? Rich people typically do not have a lot of money sitting around in their houses or simply in banks; most of it is invested, either in physical goods (such as their house, their cars, their swimming pool), or in the stock market in the form of stocks, options, or funds. Also, they tend to have better credit and so take out more loans for the purposes of investing the money in order to make returns on their investments. So when inflation increases, rich people who borrow money benefit by not having to pay back as much (relative to prices), while at the same time all their material goods do not decrease in true value (if they wanted to sell, the prices would move relative to inflation, by definition). Poor people on the other hand do not have many investments made, do not always have good credit and thus cannot get as many or as good loans, and value holding cash more than rich people (which is of course bad if inflation occurs).
Hopefully that can help you understand a bit better.
- 1 decade ago
As you know, inflation happens when the level price goes up. This means that the money lose value.
For example, you can buy a soda with a dollar, but now you need $1.5 dollars to buy it (inflation of 50%), so now one dollar can't buy a soda.
A high inflation affect more poor people than rich people beacause rich people have more money so they still can buy (even the price is higher) and poor people no. If they money lose value they cant get more money to buy essential things. That's what Robert explain. Inflation help to increase the benchmark between rich and poor.
BUT isnt true that inflation helps rich people, just they are less afected by the inflation than poor people(but they are affected). With big rates of inflation everybody would be affected negatively and with little rates of inflation (1%, for example), no one would be afected.
- NCLv 71 decade ago
Whenever Robert Kiyosaki says anything, you'd be well advised to assume it's not true. Inflation does not benefit the rich; in fact, serious economists have long known that inflation and wealth concentration are inversely related. Inflation benefits the government at the expense of the private sector. Here's how Keynes once put it:
By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become 'profiteers,' who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat.
[End of quote]
- haggismoffatLv 51 decade ago
true inflation only hurts those who hold money or those with fixed interest rates for their savings.
inflation can be a positive if it was not predicted and you have fixed rates interest for liabilities. This is due to the nominal rate follows inflation so with a fixed rate you can actually see a nagative interest rate on housing loans. The bad point is the same can happen to bond holders
- How do you think about the answers? You can sign in to vote the answer.
- carolynLv 45 years ago
I also asked this same question many times, and haven't gotten an answer