Money lessons for poker players - Inflation

We start a new series on financial concepts you need to know for poker and life, starting with the core topic of inflation.

Poker is a game played with money, but how well do poker players understand money itself? I have found that the answer to that question tends to be at the extremes, poker players tend to understand money incredibly well (hence they often branch out into things like investing, trading, crypto) or indeed they are terrible with money which is why a lot of otherwise talented players end up going broke.

With that in mind I wanted to start a series that briefly touched on money concepts that I think poker players need to understand and should do further research on.

There are a lot of financial concepts everyone should understand but personally I think inflation is the most important. It plays a massive part in all of our lives yet few people understand what it is or why it happens. I really cannot do it justice here as it is such a big topic, so please view this as a jumping off point for your own study.

Inflation is a measure of the rate that the price of goods and services increase over time. It is measured in different ways but essentially it is the reason why a dollar today gets you less than it did ten years ago.

The supply of money increases

One of the key reasons for inflation is when a nation's money supply increases faster than it’s economic growth. If you look at what is happening right now with countries creating a lot of new money to pump into the economy to help support the impact of lockdowns, many economists believe this will lead to high inflation (others think it will lead to deflation, which is a whole other subject). As an aside, this is often why people invest in Gold and Bitcoin, because they are seen as hedges against inflation because there is a limited supply of them.

I don’t want to delve into the causes of inflation any further because you can certainly get better information than I could offer in your own research. Instead I wanted to touch on how it likely impacts you as a poker player without you realising it.

When money is the tool which you use to earn more money, when it loses purchasing power you should take notice. A $1/$2 game is less profitable to you, in terms of what you can buy with the winnings, today than it was ten years ago. Even if your earn rate stays the same, let’s say you would average $3,000 a month playing $1/$2 – it may have easily covered your bills when you first started but now it doesn’t.

As a poker player you are fighting a second type of inflation in that the games always get tougher. Not only is that $1/$2 game worth less to you in purchasing power terms but as poker players improve it is becoming tougher to beat. So you win less on average in the game and what you do earn buys you less. Before that makes poker sound very grim, the same is true pretty much in any pursuit these days.

Not moving up stakes

This is a stark reminder that staying at the same stakes as a serious poker player ultimately is a backwards step. You want to increase stakes eventually not just for personal progress but also to beat inflation. The same is true in investing, you want your investment and savings accounts to return on average more than the current rate of inflation otherwise you are losing purchasing power. If your savings return you 1% but inflation is 2%, your savings are decreasing in value. 

The Hendon Mob has an adjusted for inflation ranking to reflect the fact that, for example, the $10,000 WSOP Main Event was a bigger buy-in in terms of purchasing power 10, 20 or 30 years ago than it is today. In the early days it was probably more akin to a Super High Roller tournament, although the number of entries today make it still a bigger relative prize pool.

Once again, my final words of advice are to do your own further research on inflation because I really think it is a keystone topic that opens the door to help you a lot more about the financial systems we have in place. But hopefully you can see in very simple terms why it is important for people who use cash to make more cash like poker players do.

What other financial concepts do you think poker players need to understand? Let us know in the comments.