Prices Go Up
Why the same money buys less than it used to, and what that means for money sitting still.
Hatchlings · Ages 5–6
Things cost a little bit more every year. That's normal.
Ask a grown-up what a chocolate bar cost when they were your age. They'll probably say something that sounds impossibly cheap.
Prices creep up slowly, year after year. Usually not by much, just a little. But lots of littles add up over a long time.
It means the same coin buys a bit less as the years go by. A pound today doesn't stretch as far as a pound did when your grandparents were small.
Try this: Ask the oldest person you know what a loaf of bread, an ice cream, or a comic cost when they were little. Their face while they tell you is half the fun.
Fledglings · Ages 7–8
Prices creeping up over time has a name: inflation.
It means the same amount of money buys a little less each year. The money didn't change; the prices did.
Imagine sweets cost £1 today. If prices rise a bit each year, in ten years those same sweets might cost £1.30. Your £1 coin is still a £1 coin. It just doesn't go as far.
This matters for saving. Money in a jar doesn't grow, but prices do. So money sitting in a jar for years slowly buys less and less, even though the number never changes. That's the quiet catch nobody mentions about hiding money under your bed.
Money in a savings account earns interest, which helps it keep up. Whether it keeps up completely depends on how fast prices are rising.
Try this: Ask a grown-up what three things cost when they were your age: a comic, a chocolate bar, a cinema ticket. Compare with today. Which went up the most?
High Flyers · Ages 9–10
Inflation is why money left completely still quietly loses value, even though nobody takes any of it.
Inflation is a general rise in prices across a country. It's described as a percentage per year: if it's 3%, then roughly speaking something costing £100 this year costs £103 next year.
What matters is what your money can do. £100 under a mattress is still £100 in ten years, but it buys noticeably less. Nobody stole anything. The money simply didn't keep up.
This is where saving and inflation collide. If your savings earn 2% while prices rise 3%, you are going backwards in real terms: the number in your account grows while what it can buy shrinks. The after-inflation figure is called the real return, as opposed to the number on the statement.
A little inflation is normal, and most countries deliberately aim for a small amount. Steadily falling prices cause their own trouble, because people stop buying and wait for things to get cheaper. What countries try to avoid is inflation that's fast or unpredictable.
Try this: Pick something you buy often and work out its price in twenty years if it rises 3% a year: multiply by 1.03, twenty times. Then ask a grown-up whether that sounds mad, and whether prices from twenty years ago sound equally mad to them.
What's next
The next zone in Money World is Giving & Sharing: why people give some of it away, and why it doesn't have to be money.