Inflation has many Americans worrying – a jump in prices of groceries and gas means paying more for fewer items, and possibly constraining any savings for the future. But it could also be a chance to rethink everyday spending, and possibly even help the environment.
There’s a link between consumer spending and climate change. Much of what Americans purchase must be manufactured, placing more emphasis on resources, energy and fuel. This record inflation, currently standing at more than 8%, could be a time to revisit everyday spending and change behaviors, for the benefit of consumers’ budgets and the world, said Tanja Hester, author of “Wallet Activism: How to Use Every Dollar You Spend, Earn and Save as a Force for Change.”
In her book, Hester, who is also a MarketWatch contributor, shows the link between spending and big-picture global issues, including climate change, inequality and capitalism. Hester is also an early retiree, leaving the workforce at age 38 after switching from a lifestyle of splurging to saving. Her first book, “Work Optional: Retire Early the Non-Penny-Pinching Way,” explores financial independence and early retirement.
“For the people who are under 60 currently and hopefully have a lot of years left on the planet, we have to think of the world we want to be retired in,” Hester said.
Hester spoke with MarketWatch about the relationship between consumerism and inflation and how people could change their behaviors to save their money and help the planet at the same time. This interview was edited for clarity and length.
MarketWatch: Americans are worried about inflation and what it may mean for their everyday expenses. What is causing this problem, and what are a few ways you see it impacting their cash flow?
Tanja Hester: People are thinking of the supply side shortages and how that’s affecting prices or availability of things. We saw early on in the pandemic people hoarding toilet paper or other people trying to buy them and found the shelves were empty, so you would call that supply side shocks and that has driven a small part of this. But the vast majority of inflation is driven by two factors – one, just to put it bluntly, corporate greed. We see corporations raising prices solely because they can, not because their prices have gone up. We know agribusiness giants that control the meat supply by and large are jacking up prices even though they’re not paying suppliers more or workers more. Only 8% of hikes in prices are reflective of workers getting paid more. So there’s the corporate profit side, and the other side is overconsumption by consumers. Unlike other times when we had hardships, most people still have enough money to spend right now. Up until a few weeks ago we had a strong stock market so those profits funded people’s ability to spend, and workers got raises or switched jobs and got more pay. That ended this year, but until this year, government programs were putting more money in people’s pockets to help them spend. So people were able to spend and that means they can drive higher and higher demand for goods, then prices go up. It’s a vicious cycle at this point.
In terms of what people can do – if they haven’t, look at what they can trim back and where they can do some rearranging in household spending. From an inflation and climate change perspective, it is expensive to eat a lot of meat. It is also really carbon intensive to produce and comes with a big emission toll that affects the climate. So if you want to shift more meals to meatless – I’m not saying going vegetarian or vegan – you can reduce consumption of animal products, reduce household spending and do something positive for the climate. It can also be trying to delay other purchases. It is a terrible time to buy electronics, and a terrible time to buy a car. They are just wildly expensive. So if you can put off a purchase like that, it’s good for your budget, the planet and the exploited labor that goes into that thing. We know after the pandemic people feel very stuck, they want to travel, but airfare is expensive. If you can do something closer to home, that can reduce the climate toll of your actions and reduce how much you’re spending on travel.
MW: In your book, you talk about a connection between consumer spending and climate change – can you elaborate on that a bit for us?
Hester: Folks probably understand this intuitively but the connection between consumerism and climate change is: everything we buy requires energy to be produced and energy comes from fossil fuels burned. Emissions go to the atmosphere, which warms the planet, and then there’s also the transporting of those products. At some point, people are done using the item and it will go to a landfill, where it may be buried, where it is just wasted resources, or it might actually be recycled and then that requires more energy. Anything made out of metal requires a huge amount of energy to be produced, and the refining process is intensive. If you turn it into stainless steel with multiple metals alloyed into it, it takes a ton of fuels to burn that. We can’t do that with solar power or wind power – it has to happen with coal. So just about anything you produce or you buy is going to have some pretty big price tag attached to it that you’re not necessarily paying the price for.
Think of secondhand smoke. The price smokers are paying is not reflecting harm to others from secondhand smoke, and not even reflecting harm to themselves. They won’t pay for all of the healthcare from the impact of smoking. If you buy something in a factory, the price you pay at the store doesn’t pay for the pollution or the harm done to workers who have to work around hazardous materials, or the ones in the mines or the fields, or wherever that thing comes from. Everything we buy has a price. So if you think of it that way, the more we buy, the higher impact we are having. The vast majority of climate change is driven by people in wealthy countries. If you earn $40,000 a year in the U.S. that still puts you in the global top 10%, so virtually everyone in America is rich in a global sense. Multi-millionaires are contributing much more, but we all have a role to play.
MW: There are many factors that contribute to climate change. You mentioned how meat consumption and other purchases can affect climate change, for example. How might the inflation we’re experiencing now affect consumerism and its connection to climate change?
Hester: Think of it in terms of comfort. We have been fortunate, we have bounced back from the financial crisis in 2008 and 2009. A lot of folks have been doing decently well financially. There’s still a lot of hardships not to gloss over, but for many folks, it has been a time when things have been relatively simple. Inflation was low, expenses predictable. It is the times of shock that force us out of our comfort zone.
Even though this high inflation is causing concern for folks, they may rethink choices – put off that car purchase, maybe forever. Maybe it’s a good time to be able to say, could we live with one fewer car in our household or not have one at all? They could use Uber or car shares when they really need one but otherwise lean more on public transportation or walking and biking. For food, given how expensive it’s been, how can I change behaviors to benefit myself financially and place less burden on the planet and climate? If we can reduce the amount of driving we are doing, that’s a huge driver of climate change.
You can apply that question to any part of your life. Someone in an apartment in the city has fewer emissions they’re responsible for because they’re heating or cooling an apartment versus a single family home, and cars have a bigger toll than folks using mass transit. But there are opportunities for everyone.
MW: For those who have pursued an early retirement – or any retirement really – inflation isn’t the only concern. The markets’ volatility has been worrisome to many, especially after so many years of investments mostly moving up. How can people make sense of that or protect themselves?
Hester: This is the highest inflation we have had in more than 40 years. I am 42 and it is the highest it’s been in my lifetime – last time it was this high I do not remember. That’s true of lots of folks who are pursuing an early retirement or even traditional one.
We should expect shortages and high inflation in specific markets because of climate change. For example, Abbott Labs
and the shortage of infant formula – we should expect to see that more because we know more extreme weather events like hurricanes and wildfires, those are things that will take factories offline or disrupt transportation for key goods. Climate change will make this more regular.
It is really wise for people in their planning to think of higher inflation than what they’re planning for now. In “Work Optional,” we mention 3% inflation which is a little above historical averages, but people have forgotten about that. They’re planning for too low of inflation, and that’s just a mistake, particularly because we know healthcare goes up 10% a year, and higher education is sometimes more than that. To an extent, you can control that by leaving room for prices to go up a lot – that’s a good thing. People love to debate the question of buying or renting, but I do think there’s virtue in buying if you plan to stay somewhere for a long time. It gives you the ability to control some costs. The mortgage doesn’t go up if you have a fixed mortgage, and if you pay it off then you’re only paying for increases in utilities and property taxes. There is no way to fully protect from higher costs, but planning for costs to go up higher than we’ve done in the past – that’s the biggest thing.
For folks already retired, it’s about doing your best not to overspend. Folks have gotten complacent with markets going strong. We had a record bull market that made it easy to feel like a smart investor. Ask yourself, am I really planning for my money to last? It is a good time to go back to basics and look at your plan.