How climate change will impact household finances
In what ICF considers a “high climate change scenario,” there are three main ways climate change will impact household finances, when compared to a hypothetical world where there is no climate change: retirement income losses (an average $400,000 cumulative decrease over 80 years), tax increases (an average $200,000 increase) and employment income losses (an average $25,000 decrease).
Another report, this one by researchers at the European Central Bank and Potsdam Institute for Climate Impact, found that global warming isn’t just raising temperatures: it’s expected to raise global inflation by an average of 0.3 to 1.2 percentage points per year by 2035.
The effects of “climateflation” mean Americans born in 2024 will be paying 9% more for housing, food and daily expenses over the course of their lifetime, while decreasing their net income by about 10%, according to the ICF report.
Over the coming decades, costs related to housing — which is already high — will continue to increase with higher incidents of weather-related damage, such as flooding. In turn, that could increase insurance premiums, reduce coverages or even make certain households ineligible for insurance. Those who live in an area prone to natural disasters could also experience a decrease in their property value, further diminishing the value of their assets.
The cost of food will also rise — not just because of inflation, but because of disruptions to agriculture and supply chains. For example, severe weather could wipe out certain crops, triggering a spike in prices. By 2064, when an individual born in 2024 turns 40, annual estimated spending on food will be $4,900, according to ICF.
Individuals will also pay more for health care, transportation and energy costs. But they will likely see less money on their paycheck. When it comes to employment income, higher taxes could take a bigger bite out of their salary, thanks to an increase in government expenses (like repairing damaged public infrastructure) and a decrease in government revenue.
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Read MoreHow can Americans prepare for this future?
With those costs in mind, parents may wonder if it’ll be more important for their kids to have a fully-funded disaster relief account than a college fund stashed away in a 529.
If researchers’ projections are correct, the future will prove to be costly for people of all ages. However, there are a few steps you can take to protect against future climate change-related financial losses.
“Households should look for opportunities to lower financial burdens caused by climate hazards by adapting their financial management strategies and assets (including homes and other property) for climate change,” according to the Treasury report. That might mean taking advantage of government incentives for climate-resilient property modifications and energy-efficient home improvements.
It might also mean adapting your finances, from reviewing your insurance policies to boosting your emergency savings — possibly even opening an account for disaster-related emergencies (for you or your children). Make sure those emergency funds are easily accessible — you probably won’t have much warning if a storm is coming your way.
But it’s also a good time to take action. The ICF report also posits a low-emissions scenario, in which Americans shift to more sustainable practices and lower their carbon emissions. Under this scenario, taxes for a baby born in 2024 would only increase by $5,200 over a lifetime, compared to $200,000, and they’d earn an extra $25,000 in investment income versus a $400,000 loss.
And so it seems doing good for the environment may also do good for your pocketbook.
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