Double Whammy For Low-Income

I read on newspaper, Today (8 Apr 08 issue), on the above subject and wonders if the writer has shone appropriate light onto the matter.

He wrote,
1. Increasing rate of inflation must be discussed together with declining interest rates

2. Real interest rates (nominal rates less inflation) have steadily declined in the recent past because of increase in inflation

3. Double whammy for low-income households - Purchasing power has fallen because of higher inflation while their ability to grow their savings has declined

4. Higher income households benefit from the higher inflation rate by being able to invest in alternative options that offer better returns than savings accounts, such as gold, exchange-traded funds and commodities that have boomed in recent past.

5. Lower-income households are unable to take advantage of such financial instruments because of lack of awareness and capital required for participation

6. Current situation seems hopeless for them.

He failed to share, with High Inflation and Low Interest, it errodes the value of money. This means, the funds we hold are erroded fast.

By sharing point 4 above, he may send the wrong signal to non-savvy investor-wannabe to invest in commodities like gold and equity based funds that had grown tremendiously over the recent period.

It is indeed true that lower-income families have lesser savings and may not even have any disposable funds. With that, they are unlikely to be able to open themselves to opportunities that others would have. The lower-income families are more concern of making ends meet with rising living cost.

As I read last year, people were spending more on luxury goods. As shared with several friends, if we could, conserve funds during good times and vest it into good returns investments while others spend away their hard earned monies.

During economic slowdown or downturn, our funds are magnified to allow us to take on more than what we would be able to afford during good economy.