Inflation: nothing to do with balloons!
In short, inflation is when your money becomes less able to buy goods and services.
The reason for this is that your money’s value is worth less in comparison with the things you want to buy.
Think of how £10 ten years ago could buy you more than it can today – that’s inflation.
Your money buys you less because:
- There’s more money around but the same number of things to buy with it – this can be due to a government creating more money.
- Prices have risen generally but the amount of money you have is the same. This could be a result of your wages remaining unchanged.
A small rate of inflation every year is typical in countries like the UK: usually between 1% and 3%.
You should take this into account when looking at what to invest in. Keeping your money in your pocket or underneath your mattress will likely make it worth less every year.
Saving into a bank account or investment that gives a rate of return greater than the inflation rate can counteract this.
Original article by Overdraft.com. All rights reserved.
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