Inflation erodes purchasing power
This graph shows how inflation affects your money over time.
You’ve probably noticed that the prices for lots of things have gone up over the years. When the general price level of goods and services goes up, that means the purchasing power of your dollar goes down. It’s called inflation, and it can really eat away at your future purchasing power. It’s important to understand that if your money isn't growing at a rate at least equal to the rate of inflation, you're losing money.
Here’s an example: Let’s say you stash $1,000 in a safety deposit box and leave it there for 25 years. Assuming an inflation rate of 4%, when you take the money out, your original $1,000 would only be able to purchase $368 worth of goods! So try to make sure that your money is always growing at a higher rate than the rate of inflation.
Saving and investing money can help you counteract the effects of inflation.
Click the Next button to see the power of compound interest.