Inflation

Training 275 minuteswhat is inflation

Your mom, 58, is a nurse and keeps $5,000 in cash in a box "for a rainy day". A cart of groceries went from $100 to $112 in 3 years. She asks for your advice.

Training goal: Protect your mom's savings from inflation

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Situation

1. Mom says: "The box is safest, the amount never changes."

Agree: the number stays the same
Spend it all now before prices rise
An account paying at least inflation, keep $300 at home

2. A bank offers a deposit at 3%, while prices rise 5% a year.

Great return, take it without looking further
Compare to inflation and look for a higher rate
Refuse, we lose anyway

3. Mom gets a 3% raise, while inflation this year is 6%.

Review the budget and help her ask for a pay review
Celebrate and spend more
Do nothing, it happens

4. A neighbor says to stock a year of groceries and buy a new TV "before it gets pricier". Mom's old TV works fine.

Stock up for a year
Buy the TV on installments
Buy as needed, keep the cushion in the account

What you will learn

Inflation means the same money buys less. At 4% prices double in 18 years.
Real rate = interest rate minus inflation.
Rates and assets fight inflation, not cash or stockpiles.

Your real-life step

Look up last year's official inflation in your country and compare it with the rate on your savings.

Questions and answers

What is inflation in simple terms?

It is a rise in the general price level. Each year the same amount of money buys a little less.

What causes inflation?

The main causes: demand grows faster than supply, energy and materials get pricier, and more money circulates in the economy.

How do I protect savings from inflation?

Keep your reserve in an account paying near inflation and long-term money in diversified assets. Cash at home loses value fastest.

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More trainings in this module

Numbers are illustrative. A game, not financial advice.