EFFECT OF INFLATION ON SAVINGS

in voilk •  25 days ago

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    Inflation is the general and persistent rise in price level of goods and services

    Savings is simply money set aside for future use money can be saved in the bank.

    Inflation can greatly affect savings and overtime can change individual behavior concerning savings some of the way inflation can affect savings includes

    1. Reduction in money value: the value of any money lies in the amount of goods and services that money can buy so for example if one set aside $100 as his savings during inflation and the price of a bag of rice is $50 which means $100 can get you two bags but because of inflation the price of rice has risen to $70 per bag which means your $100 that can buy 2 bags previously can no longer buy two bags because the cost of two bags has increased to $140 so this simply means your $100 savings has lost it's value

    2. Interest Rate: if the interest rate of the bank you are keeping your money is less than the inflation rate then you are greatly affected for example savings interest rate is around 4% while inflation rate is 7% then you are losing 3% of the value of your money and Banks usually offers low interest rates compared to inflation rate.

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    During inflation if an individual decides to save his cash by keeping it or putting it in a low interest bank account it would lead to wealth erosion or simply loss of wealth

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