Here's What You Should Know About Inflation

When the term comes up, it's usually in a context that makes your eyes glaze over: Something something the Federal Reserve, something something interest rates, the markets, et cetera et cetera. But inflation is one of those economic indicators that hits everyday consumers in a very real way. That means it's well worth understanding.

Generally speaking, inflation is when you need more money to buy the same stuff you bought before. It's why you can't work a minimum-wage summer job to pay college tuition (thanks, Baby Boomers), and it's why gas prices change, usually by going up. Just last week, the consumer-price index saw jumps both on a month-to-month and on an annual basis. The CPI governs how companies price many basic items and services, including food, clothing, utilities, and medical services.

When you hear in the news about the Federal Reserve Chair raising or lowering interest rates, that's about trying to mitigate inflation. The Fed makes it cheaper or more expensive to borrow money, in an effort to either boost or restrain spending and therefore pricing. If you're trying to take out a loan, for example, or ask for a raise, this is something to pay attention to.

One of the biggest lessons of inflation relates to investing and saving. Because inflation affects different sectors and products differently, it's important to diversify how you're making your money work for you. Meanwhile, it's always a good idea to keep track of your spending and see how prices change. Inflation may be a reason to reexamine your budget and see if spending on one product is cannibalizing others.

For a good and engaging overview of inflation and what it means for you, check out Crash Course and its series of videos on economics.