Inflation — FinTeen

What it means

The Cambridge dictionary definition of inflation is "An increase in prices overtime causing a reduction in value of money" It is when prices rise, a unit of the currency could buy less making the money worth less. The higher the rate the less you could buy compared to before.

Why it matters

Inflation matters because it could adjust your purchasing power, (like if you bought 5 apples with €20, with inflation you could only buy 2 apples with €20) it also affects individual and government economic growth (if rates are low and slow you could buy now than later, but if goes high fast it will lower the living standards).

How to use it

The formula for future cost with the inflation is: Future value = Present value x (1+rate)^Years. If you put your money or savings in a account with interest rates matching the inflation, your money will not lose its value and generate little amounts of income. It will also help you predict prices for the future and decide when to buy based on your wage and upcoming rises.

Real-Life Example

€10.000 today with a 3% inflation rate over 20 years equals about €18.000.

Did You Know?

$1 in 1926 would worth $18,93 today (2026), which means in 100 years of time, USD lost about 95% of its value.

Key Takeaways

Inflation could benefit you if you manage your money well and have it in interest, but could harm you if its too high meaning you buy less compared to before with your money.

If you put your savings or money in an account with an interest rate matching the inflatiob or higher than the inflation, your money will not lose money since it will bring money in.

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