- Jessie Jimenez
What is inflation?
What you can buy with $1 changes over the years, because the purchasing power of that dollar goes down a very little bit all the time.
You usually won't notice it day to day (in the U.S. at least), but over years, it can make a difference. For example, the money needed to buy one burger in 2018,
Could have bought 14 burgers 48 years earlier, in 1970, with enough left over for two packs of gum to freshen your burger breath.
If you saved $100 of your hard-earned cash, in 1974, when you got your first job, and put it in a nice, safe bank account...
By 2021, when you would like to retire, that $100 is still there, but it can buy less. You would need $528.34 in today's money to equal the worth of that $100 when you first saved it back in 1974. You lost more than $421 of buying power! It's like your bank account is leaking value all the time.
Some of you are asking, "But doesn't the bank pay me something for keeping all my money in an account with them?" Yes, but that little drop isn't going to counter the inflation leak.
This is part of why investing is important. Even if you don't make a ton of money, hopefully you won't be losing buying power.
Sometimes, inflation is not gradual, but goes up quickly making money worth less in only 1 year or a couple months. What causes this?
Too much money chasing too few goods. A lot of people have money to spend, but there are not enough goods to go around, which drives up prices on everything.
Is this happening now? Come back next Saturday to find out.
See Cashtoons blog: "Saving, a the First Step" from February 2021 for the post that introduces inflation and saving versus investing.
Market Place Podcast episode on inflation and deflation https://www.npr.org/2020/07/01/886036317/inflation-deflation