How Inflation Actually Impacts Students and Working Lawyers

Over the past few years, the coaching team at AccessLex has been keenly aware of the challenges that inflation poses for current law students, new lawyers, and working legal professionals. Inflation, which reflects the rate at which the general level of prices for goods and services rises (thereby eroding purchasing power), is a critical economic factor that impacts all of us.

Inflation in a Nutshell

Inflation occurs when there is a sustained increase in the general price level of goods and services in an economy over a period of time. It is typically measured by the Consumer Price Index (CPI) or the Producer Price Index (PPI).

Several factors can drive inflation, including increased production costs, higher demand for products and services, supply shocks, unemployment levels, an increase to the money supply through expansionary fiscal and monetary policies, and even consumer expectations for rising or falling inflation trends that drive our behavior. All of these factors and more have a ripple effect of causing too much demand relative to supply.

When inflation rises, the purchasing power of consumers decreases. This means that with each dollar, consumers can buy fewer goods and services than before.

Inflation can also affect saving behaviors. Higher inflation rates often lead to higher interest rates as central banks attempt to control inflation by tightening monetary policy. While higher interest rates can mean better returns on savings, they can also result in higher costs for borrowing.

It is crucial for legal professionals to stay informed about these political shifts, since they can directly impact the economic environment in which they practice or work.

Examples of Inflation’s Impact on Law Students and Lawyers

For Current Law Students:

1. Increased Tuition Costs: Inflation can lead to higher tuition fees, making it more expensive to pursue and persist through a legal education.
2. Rising Living Expenses: Law students may face higher costs for housing, food, and other essentials, affecting their overall budget and financial stability.
3. Higher Loan Repayments: Inflation can drive up interest rates for new student loans, resulting in increased repayments on student loans, adding financial pressure after graduation.

For Working Lawyers:

1. Salary Erosion: Inflation can diminish the purchasing power of a lawyer's salary, making it harder to maintain their standard of living.
2. Elevated Operational Costs: Lawyers running their own practice may encounter increased costs for office rent, utilities, and supplies, impacting their firm’s profitability.
3. Client Financial Stress: Clients facing inflationary pressures may delay or reduce their legal spending, affecting the lawyer’s revenue streams.

Mitigating Inflation Impacts

By recognizing potential impacts, both current law students and practicing lawyers can better prepare and adapt their financial strategies to mitigate the effects of inflation. Here are a few ideas:

1. Budgeting: Regularly review and adjust your budget to account for changes in living expenses due to inflation. Cut where necessary and increase income where possible to account for increasing costs where they exist. Unfortunately, maintaining the status quo often leads to costs outpacing income in many households.
2. Savings: Take advantage of higher interest rates by exploring savings accounts or investment options that offer better returns.
3. Debt Management: Be cautious about taking on new debt during periods of high inflation and high interest rates. If you’re borrowing student loans, understand how higher rates translate to payments after graduation.
4. Stay Informed: Keep abreast of economic policies and political changes that could affect inflation and your financial situation.

Inflation is a complex and pervasive element of the U.S. economy that can significantly affect consumer spending and saving decisions. By understanding the interplay between inflation, economic policies, and consumer expectations and behavior, law students, new lawyers, and legal professionals can make more informed financial decisions to navigate fluctuating economic conditions.

To discuss your specific spending, saving, and borrowing questions, schedule a free call with an Accredited Financial Counselor^® through AccessConnex by AccessLex^℠.