#FinanceTips: How do people in countries with high inflation afford big purchases like houses and cars?
Hey there! So, you’re curious about how folks in countries with crazy high inflation manage to buy big ticket items like houses and cars, huh? Well, buckle up, because I’ve got some fascinating insights for you!
## Understanding High Inflation
First off, let’s take a quick dive into what high inflation really means. In countries like Argentina or Turkey, where inflation rates can be sky-high, the value of their local currency tends to drop rapidly. This means that prices for goods and services can shoot up drastically within a short period of time.
## Planning and Saving
One key strategy for making big purchases in high inflation environments is careful planning and saving. Folks in these countries often have to save up for years to afford large items like a house or a car. Setting aside small amounts regularly can add up over time, helping to offset the impact of rising prices.
## Negotiating and Timing
Another savvy move is to negotiate prices and time your purchases wisely. In high inflation scenarios, prices can fluctuate drastically from one day to the next. By keeping a close eye on the market and striking deals when prices are lower, people can snag a better deal on their dream home or car.
## Long-Term Financing
Now, when it comes to long-term financing, things can get a bit tricky. Traditional lending institutions may be wary of providing loans in high inflation environments due to the uncertainty surrounding future currency values. However, some financial institutions do offer inflation-indexed loans, where the interest rates adjust according to inflation rates.
## Conclusion
So, there you have it! Making big purchases in countries with high inflation isn’t easy, but with careful planning, saving, negotiating, and finding the right financing options, it can be done. By staying informed and making strategic decisions, people in these countries are able to navigate the challenges of high inflation and achieve their financial goals. 🌟
Ready to tackle those big purchases? Let’s get started! 🏡🚗
One way to do it, has been to make the purchase in another currency, a very stable one, such as USD or Euros. In many counties experiencing monetary issues there is a significant grey market that arises for trade being done in other currencies for purchases. Sometimes this is just arising naturally other times the govt may directly allow it or just accept that it’s how things are getting done.
In Chile, real estate and large business transactions are done in Unidad de Fomento, which is designed to hold a steady value with low inflation regardless of fluctuations in the peso.
Countries with high inflation, and even those without, often price things like cars and homes in dollars even if day to day purchases are in their own currency. I know this is how it works where my in-laws live. It’s a smaller country, one with a fairly stable economy and currency but real estate is still in dollars.
Mortgages are denominated in stable currencies. For example, OTP Group, a large lender and a banking giant in Eastern Europe used Swiss Francs for mortgages. Of course, lenders were royally screwed if their local currencies (in which they were getting their salaries) tanked.
In Argentina there is no thing as credit, so people that buy houses do it by cash in USD, most people buy Dollars to save money.
People joke saying that in Argentina you buy a pair of shoes with credit but a house in cash.
When I was in Peru I noticed that many houses were unfinished. People don’t (or can’t) borrow large amounts of money so when it comes to things like houses they build them piecemeal over 10-15 years instead of borrowing money to buy a finished one.
Usually you pin the price to USD or EUR.
For credits/mortgages you would have variable rate interest based on inflation.
Some countries allowed making loans in USD, but in Ukraine a lot of people took low interest USD loans compared to higher interest UAH loans, and when after Russian invasion in 2014 the exchange rate spiked 200% were unable to pay them (as their salaries were in UAH but loans in USD). This caused additional strain on financial system as a lot of people defaulted on their loans, so this practice was banned.
I can speak for Argentina at least. We don’t buy houses. Cars can be relatively inexpensive because a lot of cars are manufactured in Argentina, but you will still need to take out a 5 year loan or something. But the short answer is that people in Argentina don’t buy big things.
Inflation between 50%-100% isn’t as severe as you think, the prices do move significantly month to month but it isn’t fast enough to distrupt settlement of asset transactions that would take days or 1-2 weeks. Maybe the prices will have increased %3-4 by then, oh well then you factor in the expected loss of value in the initial price.
Source: I lived in Turkey.
In Argentina you basically need to stash USD purchased from a grey market under your mattress to save it. If you want to save up for an apartment there you can’t tell anyone as it makes you a big target for robberies. If you ever go to Argentina bring as much USD as you can legally carry, you will live like a king