Saving · Module 8 of 9
When your own money buys less each month
Why money that just sits loses value when prices rise, and the one comparison your bank’s ads never show you.
Key terms in When your own money buys less each month
- Inflation
Inflation is a sustained rise in the general level of prices over time, so each unit of money buys fewer goods and services. It is usually reported as a yearly rate and tracked through price indexes such as a consumer price index. Rates vary widely by country and period, and some economies have also experienced falling prices, which is called deflation.
Source: International Monetary Fund, Inflation: Prices on the Rise
- Purchasing power
Purchasing power is the quantity of goods and services a given amount of money can buy. It falls when prices rise faster than income and rises when prices fall or income outpaces prices. Economists often speak of real income, meaning income adjusted for inflation, to describe how far earnings actually stretch.
Source: International Monetary Fund, Inflation: Prices on the Rise
- Real interest rate
A real interest rate is the nominal rate, the stated rate on a loan or deposit, adjusted for inflation. When inflation exceeds the stated rate, the real rate is negative, meaning a lender or saver loses buying power even though interest is paid. Economists use the measure to judge whether returns on money actually grow its purchasing power.
Source: International Monetary Fund, Back to Basics: What Are Negative Interest Rates?
Every term on Lever is in the money glossary.
About this module
When your own money buys less each month is part of Saving, one of 15 subjects in Lever. It’s a short run of 5 lessons, about 13 minutes in all, so you can finish it in one sitting.
Every lesson takes one idea at a time. You read it with the math worked out step by step, answer a question that puts it to use, then see why the right answer is right and why the others aren’t.
It’s for anyone who was never taught this, and you don’t need to know anything first. Every lesson is free. Lever works out what you already know, so you can start here or let your path bring you to it.
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It’s part of Saving. Lever will bring it to you when you’re ready, or you can go straight there.