Tuesday, October 26, 2021

The Truth About the Tooth Fairy: Inflation Stinks

This week my child lost a tooth. You know the drill: sneak into their bedroom, pretend to check on them, and then carefully swap the tooth for money without trying to wake them up.

If you have experience with this, then you have inevitably asked the question: how much should I pay? One dollar is what my child received for their tooth, which happens to be the exact amount I received for one tooth. Is that fair? It’s the same amount I received decades ago; if today’s children got wise, they would realize they are getting a raw deal compared to previous generations. This is all due to inflation.

What is that phrase we all heard in some economics or personal finance class at one point in our life? “A dollar today is not as valuable as a dollar tomorrow.” This is especially true when looking at value of the money children have been receiving as compensation for their lost teeth over the years. According to this source, $1 thirty years ago equals $2.01 today, a cumulative rate of inflation of 101.4%. Perhaps more equitable parents out there are considering inflation when determining how much money to leave under their kids pillows. An informal study by LendEDU suggests the opposite. Based upon surveys of hundreds of individuals from different generations (baby boomers through parents of Gen Zers) showed that, adjusted for inflation, each passing generation was receiving less value for their teeth. The survey showed that baby boomers received on average $0.69 per tooth from the tooth fairy which is $5.77 in today’s money adjusted for inflation!

What can this anecdote teach us? Money, and its value, is a constantly moving target. Whether you are an employee concerned with wages, an employer concerned with increasing business costs, or even an individual investing for retirement, inflation is important. Understanding how it works and what can be done to combat its effects is key to financial success. I think we can all agree that a tooth is not worth what it used to be, but can we just keep this a secret from my children for a little bit longer? In case you are in “inflation geek” in need of more interesting content, check out this article by the Peter G. Peterson Foundation called “What is Inflation and Why Does it Matter?” or this interesting story from NPR Plant Money’s show about why Coke cost a Nickle for 70 years!!

Author: Andrew Potter 

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