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Quick and Easy Explanation of Inflation

Updated on January 12, 2011

Inflation Explained

Looking for a good way to explain inflation so that even a child could understand it? 

Inflation has been called “The Silent Tax” or stealth tax. Often inflation is explained as something that is just a part of economics and should be accepted. However when you truly understand what it is and what it means you begin to see that it is simply a tool used to enrich those in power of the money supply and tax your money without having a tax.

Here is a quick and easy way to understand how to explain inflation. Often we throw the term inflation around when referring to how much more expensive things are when actually it would be more accurate to say that your money, or even more accurately, your currency is worth less.

When trying to explain inflation to young people you may find it more entertaining to provide visual aides. For this you will need a quarter ($.25) from 1964 or before and a quarter from after 1964.

Now if you had this older quarter in your hand in 1964 you could use it to buy about a gallon of gasoline, because gasoline sold for about 25 cents a gallon give or take a couple of cents. Also if you kept that quarter until today you could sell it for enough money to buy about a gallon of gasoline because the silver in the quarter is worth about the same as a gallon of gasoline today.

This is because the quarter from 1964 and before had at least a 90% silver content. The value of that silver has stayed about the same as in 1964, meaning you could buy about the same stuff with it. However the quarter from after 1964 will not buy as much because its value is not based on its metal content and the supply of them keeps going up.

You should have noticed that the newer quarter has a copper toned ring around the sides. This is because the newer quarter is made of various metals which when melted down would not be worth very much. But since it has been stamped into a quarter we can use it as currency to buy things we want or need that have a price tag of 25 cents or less.

So when the government prints more and more dollars it makes the dollars in your pocket worth less. And since the dollars do not have to be made of anything valuable then they can print more when they need it and after it starts to circulate it makes your dollars worth less, because the more of something there is the less valuable it is right?

For further and more in depth explanations of inflation research terms like fiat currency, 1971, Nixon, gold standard, Federal Reserve, fractional reserve banking, debt monetization, gold reserves.

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    • profile image

      darshika 

      6 years ago

      it is very critical economic problem. i have to write an article on inflation this web page help me to write the best article in my class:-)

    • tylermj23 profile image

      tylermj23 

      6 years ago from Roanoke, VA

      It seems so rare to ever find pre-1965 quarters these days. I search through change often and I hardly ever stumble upon one! I'll keep looking though.

    • WestOcean profile image

      WestOcean 

      8 years ago from Great Britain

      Bring back the gold standard! Churchill was right :-)

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