Elisabeth Westhead

Minesh
I think fear paralyses. Greed probably tempts people. See…. I am bothering to write this for you because you are dangling a scholarship in front of me. I have a house, several harps, several violins. I believe that my instruments will also go up in value, thought not as handsomely as gold. But to do your course I should have to sell one or two instruments.
I think doing your course and using money in a totally different way is taking a risk. An immediate reward helps to tempt me.
My other worry is about morality. I have been taught that certain ways of making money are immoral. Like climbing on other people’s shoulders and taking advantage of them is immoral. If I went out and bought peoples gold for cash, and then evaluated it and sold it on to professional sources for good rates…. as has been suggested, I should be unhappy. I should want to give the sellers a better rate – probably.
So I think I would be tempted by you playing on my greed. But (I am not pointing a finger at you here) I should also have to feel you were being totally transparent with me and that the deal you were offering is above board and not taking advantage of people – (as well as being legal, of course).

Peter Hool

A penny black in 1840 cost an old penny, a first class stamp today costs 60 new pence or 150 old pence. Put another way £150,000 in 1840 would only buy £1,000 worth of stamps today.

£12 worth of gold in 1840 would now buy £1,200 worth of stamps.

In terms of gold and postage stamps; £150,000 is worth less than £12. Yes Gold went up and pounds sterling went down by a huge amount measured over a long period of time. Draw the downward curve for your cash based savings spending power when you need the money the most.

jerome

your mars bar or silver examples are the best example ive heard .go with that.
answer to the first question .many people have given up and hope that government will look after it.
i asked my friend what his retirement plan was and he just stared at the cigarette in his hand.

Dick Smith

Inflation is like pumping up a balloon with fresh air. Over time the fresh air gradually disappears and the balloon deflates. The same thing happens to money. Over time it’s value deflates. Fill the balloon with precious metal (if possible) and it stays there……..and doesn’t deflate.

steve teers

Its like owning your own shop where because you sell lots whether it groceries or clothes your landlord decides to increase the rent

Crystal

Here’s how I explained inflation to my young niece. On Monday, the dollar in your pocket will buy you 10 cookies. By Wednesday, the same dollar is worth only 6 of the same cookies. By Friday, $1 will get you 2 cookies. And by Sunday, you will have to borrow money to be able to afford even half a cookie. The same amount of money can buy fewer things as inflation rises.

Patrick Clarke

I recently read that £1 today is worth the same as 33 Pence in 1982 in terms of purchasing power. In other words, someone earning £15,000 in 1982 needs to now be earning £45,000 just to stand still financially.

Richard

A picture tells a thousand words…or so they say. I would use two graphics for this answer.
Graphic 1 will show how, over a 10 year period (or 5 year period), inflation eats away at your $100K cash. So you would have 10 individual bar charts for each of the years. Each bar would show the deterioration in spending power of your cash although technically you would still have $100K in the bank if you don’t spend any of it of course (a 10 year period would probably be more dramatic and hit the message home). I’d track the decline with a red line linked from year 1 through to year 10.

Graphic 2 should track the gold and or silver increases over the same period with an original holding of $100K. It will show the increase by year and again should be tracked by a continuous green line.

If its for a presentation, then after talking about the two graphs individually, the final point should discuss the overlaying of graph 2 over graph 1 (super impose graph 2 over graph 1) – quite dramatic I would think.

Fritz Meyer

You have a copy machine. The government has a hugh copy machine.
Would you like to copy your 1 dollar and make many more? Then you could buy more fun things.
Problem is, you can’t do this but the government can.
Now the government prints many,many, dollars and gives them to others so they can buy more fun things.
But you only have this 1 dollar. Is this fair?

Minish thank you for your excellent analogy. Fritz Meyer

randy julien

The best way I could think of breaking down the (Tag) gold, gold & silver, gold for life, inflation, minesh bhindi, silver, why invest in gold, why invest in silver(Tag) is an analogy a child could learn easily would be :

As playing the game-board called “trouble” maz 4 players and we finally are told that the game is rigged every time it is your turn when its time to push the bubble to see what number dice you rolled. No wonder the player across from you always ends up in first place.
Now for adults :
We are also playing there board game at there home. He did always say that seat was his lucky chair.

Note*- Any board game will do* This is great for the more competitive personality.
*the rigging represents the power someone has against you**Recognizing your being cheated represents to have the option from walking away from the game now you know its rigged.

Abs Haitham

One logical way to inter-connect what is inflation is to compare it with the purchasing power of one’s currency. Inflation is considered as a rise in the general level of prices of goods and services in an economy over a period of time. Purchasing power is known as the amount of goods or services that can be purchased with a unit of currency. Currency can be either a commodity money, like gold or silver, or fiat currency, or free-floating market-valued currency like US dollars or even £Sterling.The key to preserving your purchasing power and keeping on top of inflation is to use the most effective unit of currency against inflation. It has been proven that gold and silver have been more effective over the years in preserving one’s purchasing power than $ US or £ Sterling.
“Nothing is more difficult and therefore, more precious than to be able to decide” Napolean Bonaparte

Andy Coates

Right here goes,

To me inflation is like an invisible disease or a cancer that for as long as it can simply eats away at you without you knowing or to find out its just too late to do anything about it and because its hidden away or invisible if you will, then you / we don’t do anything about it, because how can we fix what we can’t see !

Which is just how the governments like it

“which governments” i hear you cry….. All governments is the answer as “They all piss in the same pot” just like all politicians do. (don’t get me started on politicians)

Anyway my analogy of money and where to save / invest it is like this

Having money in various places like Banks,Building societies or maybe an Isa or 2 is like
putting you money onto a train

(stay with me guys its does get better) now the bank is a red train the building society is a blue train and the Isa is a yellow train,

Now they all offer different benefits for your money right, however ALL the trains go where the tracks lead them and guess what, its the billionaires who built / laid the tracks that decides your final destination! , you just think you had a choice because of the color of the train you picked!!

Think about it were playing by other peoples rules and the cards are Always stacked in their favor, and always will be

I think we should wise up and lay down our own tracks!

As for inflation or what i like to call the “silent fiscal killer” or “financial cancer” or maybe something a bit less awful
oh i know …….”Legalized stealing”…… yeh that’s a good name for it

Because that is what it is like, for instance, if a year ago you had 50K sat in your bank (would be nice right) and you were thinking of buying a 5 series BMW, but you thought no i will wait a year until my wife retires then we will buy the car then take it on a road trip around France. nice idea right.

So a year goes by and you take out your money from the bank and the teller hands you £42.000 and you say hang on i had 50 k in there where’s the rest of my money? and the teller says that’s all your getting so please leave.
Then you would claim that you have been robbed right, and rightly so because you had !

However that’s not whats going to happen right, because you are going to be handed £50.000 and you stand there and count it out and all is well with the world right? WRONG!!

Because you take your lovely crisp 50 k down to your local BMW dealership and hand them over £44,000 pounds
and say i would like the black one please, remember the one i teat drove last August and the salesman says “yes i remember” however it will now cost you £49,995. , so you still get the car however your wife will have to make do with a trip down to Margate (and not around France) some may say that they would rather go to Margate , but that’s another story 🙂

The point is that in effect, that in real terms you have still been robbed, but legally robbed by that evil wrong do-oer (cue baddy music) “INFLATION”

joking aside, the outcome is still the same the spending power you had has just been lowered just as if you only have had 42k given by the bank teller

so you received £42,000 (in buying power) and was told its £50,000 (this trick would make Paul Daniels proud)
you might like it but “Not a lot”

So here’s the final bit

£100.00 = 10 £10.00 notes which = 10 pieces of paper with the queen on it and it buys 100 loafs of bread

Value a year later

£100.00 = 10 £10.00 notes which = 10 pieces of paper with the queen on it (so just like last year)

HOWEVER it will only buy 72 loaves of bread ! you see you been robbed (silently and legally)

That’s inflation for you

Right I’m off for a lie down after that

Andy

veronica brand

I like to use the example of a food shop as most of us do this on a regular basis.

CASH SPENT COST IF SAME FOOD PURCHASED

MONTH 1 £100 £100
MONTH 6 £100 £105
MONTH 12 £100 £110
MONTH 18 £100 £115
MONTH 24 £100 £120

QUESTION:How much is your original £100 now worth if it now costs £120 to purchase the exact same items ?
Well its worth 20% less now so £80
Liken this to your savings
AMOUNT OF SAVINGS NOW WORTH
£100 £80
£1,000 £800
£10,000 £8,000
£100,000 £80,000

Obviously the above figures are for representative purposes only , to illustrate how inflation is devaluing your money.

Jennifer Rodriguez

This is how I would explain it:
Imagine that you have a dollar. $1 = 100 candy bars. With your one dollar you have the ability to buy 100 hundred candy bars today. But the next day you wake up and suddenly $1 = 90 candy bars. In only 24 hours your ability to buy candy bars went down 10%. The price of the candy bar went up as well and now you can only buy 90 instead of 100 like yesterday.
The day after, you wake up and suddenly $1 = 50 candy bars! In only 48 hours, your ability to buy candy bars with one dollar went down 50%! The price of the candy bar shot up even more as well so with one dollar you can only buy half of what you were able to buy just 48 hours ago!
This is how inflation works. Your ability to buy more with your money (cash) goes down faster than your ability to make it.

Tom

Great post Minesh, I’ve learned so much about inflation and you have also scared the shit out of me. I think that’s the best way to teach inflation in a way to cause people to take action, you need to scare them a bit.

I guess a good way to describe inflation is you go to the bank and deposit $100. The same time next year you go back to the same bank, you draw out your $100 because your going to bu y a sweet inflatable pool with it (keeping with the inflation theme), you see the teller take the note out, you open your wallet with great anticipation, ready to take the 100 and slide it in, you reach out to grab your hard earned $100 and as you do, you realize the teller is leaving you hanging, you notice the teller takes out their pen, and they scribble out the 100s all over the note and write $96.40 on it! You now have to settle for a smaller, cheaper inflatable pool…

brian zarb

If you could picture a GIANT ELEPHANT with the words INFLATION on it sucking 10% purchasing power from your total cash savings amount (equating to different amounts of dollars in different types of cash accounts,savings, 401k’s IRA’s, etc….) per year out of a hugh pitcher of water (this pitcher represents your purchasing power amount in currency) showing the water level going down future year by future year, you would once and for all understand the effects of inflation on any cash account you have. Then picture an image of the dream car (maybe a MERCEDS 560), you wanted to purchase with your original savings amount, now those same $$$ having the power to ONLY purchase an ACURA, HYUNDAI, or TOYOTA!! Minesh, i think it is important to create images/visualizations in people’s minds as most people are visual beings, with regard to the inflation process. Any person at any level of savings would fully comprehend a visualization/image when it comes to loosing an asset such as money in such a stealth type of way as is done by inflation!!

Jenny

Hi Minesh,
This how I would explain it to my children.

There is inflation and there is deflation.
Very simply, inflation is like blowing up as in a balloon and
deflation is how the balloon all the air comes rushing out. when you let go.

In our lives we buy things with our money that we have earned.
If you want a bike then we have to find out how much a new one costs.
Now bikes get better and better every year with lighter frames and lots of gears
that is they are made with better technology and materials.
But the cost is more each year as they develop better ways of making bikes.

So when I got a bike they cost about $50 for a top of the range bike and now
you want a bike they cost about $300. That is inflation – the price has gone up
over time. But you must remember that if we could put my new bike right next to your new bike yours is so much much better than mine.

Now let’s say you want ,instead of a bike, a new playstation.
There were no playstations when I was a kid so we can’t use that.
But we can look up on the internet how much they cost when they were first invented.
They were over $1000 for a new playstation. And that playstation was similiar to my bike –
it was top of the range for its time. There was nothing like in the shops. Someone had thought
of an idea and created the playstation as a fun toy.
So they were expensive because they were a new toy and there were not a lot of them.
Now today there are lots of different types of playstations and they play the most amazing brilliant
games and the pictures/graphics are so life-like. But, guess how much they are?
Around $300!
That is deflation. They get more and more cheaper to make because of the materials used
and the demand for them is very very high. So millions of them are made and because of that
they are cheaper to buy.

So, the materials used and demand for make things make things either go up in price or down.
That is inflation and deflation. To find out if your new thing you want is going to be more expensive or cheaper in the future see how much they were a few years ago.

Now when people start working, they put some of their money away each week so that when they stop working they have money to live with. But what they have to do is find a way to make the money they put away inflate and not deflate. They have to make their savings money work too and they need to invest in something that will help make their money grow into more money.
It is very important. Because if they don’t the money will naturally deflate like a blown up balloon.
You know how a balloon will slowly deflate if left alone – that is what happens to people’s savings.
What people must do is find a way of inflating their savings money so it is like one of those balloons that when you let go it floats up and up.

That would be the first lesson and I would leave them with the image of their balloon/money going up.

Christine L.

Think of every dollar you save as a cup of water. Your goal is to fill up a barrel of water by the time you are 65 years old. Problem is, there is a hole in the bottom of the barrel. So, every time you pour in a cup of water, it leaks out of the hole. The leaking out of the water is inflation.

We all know that we should put money aside for the future. For those of us disciplined to do so, it is critical to understand that for every dollar we save today, it will not truly be worth a “dollar” in the future because that dollar will no longer be able to buy us the same amount of “stuff” in the future. say you have a dollar today and with that dollar, you could purchase a candy bar. But instead, you forgo the candy bar and save that money in the bank. A year in the future, you still have that dollar in the bank, but you can no longer purchase that candy bar for one dollar. To get that candy bar, you now have to pay two dollars.

Jim M

Hi Minesh, “Inflation’ is the thing that is DEFLATING your personal income, cash reserves and pension on a constant basis, and the more inflation goes up, the less your income, savings and pensions can effectively BUY in real terms.

If there was no inflation, the value of your income and savings would be constant, and in 10 years you could buy what you are buying now, at the same prices as today.

With Gold and Silver increasing so much in value in the longer term, they provide the means to offset and even get the better of inflation by having you money in an asset form which not only retains its value but is increasing.

Jim

oriel

Hi Minesh,

I think the answers you have given are best. To explain it to a child you have to pick something they like and want to buy. Like play station games for boys and barbie dolls for girls (ooh stereotypical! I hope I don’t get into trouble here).

Ok so I explained it like this to my 9 year old niece: (She’s into Barbie big time by the way).
“An example of inflation would be if you wanted to buy the latest Barbie doll from Toys R Us and it costs £15. You get £1 a week pocket money, how long would you need to save all your pocket money for to be able to buy the Barbie?” (she replied 15 weeks) “So after helping your mummy around the house to earn your pocket money, after 15 weeks you’d be able to ask your daddy to take you to Toys R Us to buy your Barbie?” ( Yes she replied). I asked her “how would you feel on your way to the shop to buy your Barbie?” (excited she replied) “So how would you feel if when you got there the price had gone up to £20? Would you be able to buy your Barbie? (No she wouldn’t and she’d be very upset) “What if you then went home, saved up your pocket money for another 5 weeks, when you had £20 you went back to Toys R Us to buy the Barbie but when you got there the Barbie was £22, it had gone up again and you still couldn’t buy it! What would you think? (that’s not fair she said, and being smart she said she’d go to another shop!). So I asked her “does the money you have to pay with for the Barbie doll look any different?” (no she said) “is it still £20” (yes she said). “But can it buy you the Barbie doll you want?” (no she said) “That’s why inflation is so clever and not fair – your money looks the same, it takes you the same amount of time to earn it but after a while, even though you can’t see anything different about it, you can’t buy what you want with it any more – you always need more of it!”

Just another way of saying the same thing 🙂
Oriel

Alex

Inflation so vivid a child can get it.

Imagine our money as a stack of paper bills – for old times sake Pound notes. We put our money in a safe place to protect it so we can use it when we want to.

But the safe place has a problem; it is a hungry mouse who sneaks in and he eats one of our notes every day.

So we’ll find 7 notes gone every week.

So when we want to buy a new bike or trainers and we count our money before we go to the shop – we might not have enough because of the naughty mouse.

jame green

Inflation represents value in terms of what you can actually buy with your money. Over time inflation reduces the value of your money. It is not related to the actual amount of money that you have but what you can get for it. Imagine a horse is twice the cost of a pony, always has been – always will be. In 1990 you bought a horse for $100 – today you could only buy a pony for that same $100. When inflation was very bad, in prewar Germany, workers got paid in cash and RAN to the shops to spend it before the value of their money decreased and they could buy less. This was high inflation, it was that bad. You need to protect yourself against it or see your savings disappear.

brendan

Of yes, Inflation – the “The Silent Tax”. Simply put, inflation is a rise in prices relative to money available. In other words, you can get less for your money than you used to be able to get.

An increase in the cost of things that are necessary for humans to live and enjoy life, such as bread, butter, milk, cheese, coffee, oil, shelter, clothing, medical services, chicken, cotton, electronics, etc.” Or “a decrease in the value of money so that it takes more £s to buy the same goods and services it did in the past.

As the government increases the money supply by “printing” more of it inflation increases. The costs of good and services must increase because the suppliers costs have increased
So, if explaining this in terms a child would understand, lets pick an item that a child really appreciates. A McDonalds happy meal. 🙂

10 years ago that meal would have been priced at around £2. Now for the same meal it might be £3. That is an increase in cost of 50%!! You could have gotten another half a meal for the same price!

If you’re getting the same meal at a higher price, the price of the meal has not actually risen. Just the value of the £ has actually dropped. The meal is more expensive because of the rising costs of goods and services. As the cost of supplies goes up, McDonalds has to raise the cost of its meals (over time) to continue to make a profit. This is simply known as inflation.

For those with money in the “piggy” bank. If you have a few thousand £s in the bank this money will erode over time. Your money will really not grow sitting in the bank, but, the costs of all good and services that you use will. Look at all of your usual purchases. The McDonalds, the mars bars, groceries – they have all increased noticeably over the last 10 years. Has the money sitting in your bank done the same?

Rita Gautam

Inflation is the scourge of our time! It basically means that even though the amount of money one has remains the same he or she finds it increasingly difficult to survive in light of increasing cost of goods and services that he or she avails. This so because the income remains the same but in REAL terms it buys less goods and services due to inflation. The same way money just sitting in a bank account erodes in value disproportinately and buys less and less!

cathi

Question 2

In year one you decide to emmigrate to Australia. By the time all the processes are in place, visas, passports etc youhave gone into year 2. You are about to leave when you realise you cant emmigrate and, you cant get out of this country because the value of what your saving would bring you in the new country aint going to buy you a heap of beans! You are trapped in a gylag called Poundland , sorry I mean Britain.

Dwight

25 years ago my Uncle gave me 50p to buy sweets.
I manage to buy enough sweets to share with 5 other kids, penny sweets, chocolates etc.
Today, I gave my kids a 50p piece, minted in the exact same year and asked them how far it could go on sweets. You can guess their answer.
The 50p piece has not change so what has?
The cost of sweets and everything in between.
So the longer they hold onto the 50p, the less sweets they can buy. The only answer is to make sure the 50p earns a few more pennies as time goes by.

nick

I think a candy bar is a good example, people need to see they fuure personal loses, if you can call them that and even more need to see what their 10 pounds, €, dollars … will be worth in 2-3-4-10 years, but most importantly, they need to see a bullet prof plan that your strategy is working. We all know what money is and will be worth in time, what people need to know is a plan that will prevent that. Gold and silver are a sure think, the only one trough history as long as you have them with you – in personal possession, so called bank gold etc.., is same as shares they can sell it to everyone 45 times, and then you have to have a plan what happens after complete inflation, collapse of money, where to invest to trade the overpriced gold back to another trading unit….

gouri

Hi Minesh

I would explain the concept of inflation to my child in the following way:

If he/she has five dollars in his/her piggy bank, he/she can buy 4 candy bars at rate of 1.25$ each. But because the costs of goods always goes up due to various things like labor costs, high demand-low supply and other reasons, in next three years he or she may be able to buy maybe only 2 candy bars with $5. This decreasing purchasing power of money is called inflation. So in order to be able to buy 4 candy bars with the same $5 dollars he/she has, he/she has to buy something with it which will keep increasing in cash value at the same rate as the rate of inflation.
(For an adult crowd, you might even explain how the people are losing faith in the government to control prices and so they want to invest in something substantial like metals.) So gold prices go up with inflation and the decreasing confidence in government, so gold is good investment.
Now some people, even Susan Miller, the investment advisor believes that if you don’t know what to invest in hold back, that is let your wealth stay in the cash matrix. Because even though you are losing your purchasing power, you at least have some power left, instead of losing it all in some form of investment.
To address this dilemma, I think it is essential again to take a look at basics of wealth creation. Once people stand that investment is just another tool for wealth creation, they’ll also realize that there are certain times in the economic phases of the world wherein this tool will work the best. If that time is now, then they need to use this tool now. At some point in future, there might be another tool that will work best and it will be time to switch gears. Once you acknowledge this truth, I think your clients will also acknowledge it and be more open to the investment tool that you are offering.

Aftab

When relatives tell you that back in the day they could buy a pack of cigarettes(obviously now nicorette patch),pint of milk & mars bar for a fiver & still have a change they will soon enough struggle to buy a pint of milk for that let alone get any change, that’s inflation.(if you thing I exaggerate look at Germany in the not so distant past). So if you still want to be able to enjoy the odd cigarette, a glass of milk & a mars bar in the not so distant future better pull that cash out from under the mattress & look at silver & gold.

Adrian

Hey son, you’ve just had your eighth birthday. When you were born your nanny put $100 in an envelope for you and set it aside so you could use it after you turned 8. That’s the good news. The bad news is this. You’re a big fan of building things with Lego. If you could have used that money the day your were born to buy Lego, you could have bought 10 full sets. Now because of a thing called inflation, you can only buy 4sets. It’s not fair and you’ve done nothing wrong but that’s what inflation does. The longer you hold on to that money, the less Lego you’ll be able to buy. Tough but valuable lesson!

Peter-Andreas Zielinski

What is inflation?

Let me give you an example: The gouvernment meaning politician decide that everybody should have a house. But not every father or mother has a good job so that they can afford this house to improve the way of living of their family. That’s why the government starts to initiate a process in which the rates for credits are lowered so that every family can be happy. Now, everybody starts to buy a house and all the families are happy. But the banks which get the money from hard-working mothers and fathers act in a way which is for normal non-economics-persons or politicians invisible. They pretend to give the families a credit fond for low rates but in reality they know that the worth of money changes allways. Their are huge goveernment-independent banks which increase suddenly the rates for the credit. Mothers and fathers who work for example as teacher or nurse suddenly have to more even though the credit-giving bank has been pretending something different. Politician suddenly decide to save the mony of the nation. They pretend to garantuee that this is the best strategy in this situation. Mothers and fathers loose their jobs and they have to sell their houses. Kids become homeless. The banks become nervous and higher the rates. It like bubble which grows and grows and grows and suddenly it explodes because the banks and the politicans have made a mistake. Money becomes less worth so that you won’t have to pay 3 Dollar for one pizza, but maby 6 or seven Dollar.

michael raeburn

Minesh what a great way to get this inflation thig over beleve me if I got it then every body must have powerfull stuff
many thanks

Kim

Hi Minesh,

This is how I recently explained it to my 10 years old nephew:

Well, let’s pretend that you’re not happy with the allowance that your parents give you. You don’t have enough money to buy all the bubble-gum, hamburgers, comics or toys that you want. Let’s also suppose that you had a Magic Machine that could print all the euros you wanted. (This is called “counterfeiting” and people go to jail for doing this. But just pretend that you could print as much money as you’d like.) Since you would have all the euros from this Magic Machine you could spend as much as you like and would not have to worry about asking your family for a bigger allowance. When you’re on a limited allowance you have to watch your pennies pretty carefully. But if you had a Magic Machine, you could be less careful with your euros. You wouldn’t have to choose between an iPhone or an iPad. You could buy both and even more! This would be fine and dandy for a time.

But suppose your friends all had these Magic Machines or that you had so many euros that you gave a lot of them to your friends. Well, if enough of you had loads of money to spend at the local candy store pretty soon something interesting would happen. The candy store owner has only a certain amount of bubblegum to sell. But suddenly, with you and other “rich” kids, there’s a big demand for bubblegum! If he had only 5 packages of gum for sale and there were ten of you who wanted to buy it, any one of you might be willing to pay €10.00 or more for one package of gum. (Remember that back when you had only your allowance, you’d never pay that much for a little pack of gum!) Because of the bigger demand, the owner of the candy store might decide to ask a higher price for the gum — and you will pay it because each of your euros has lost some of its value. You may seem “rich” but your money has lost a lot of its buying power because there are others who also have lots of money and are “rich.”

In very simple terms, this is what the government has done. Through many decisions made by the officials in the government, there has been an increase in the number of euros printed. There are just many more euros—paper euros that don’t buy as much as the old euros did. (I am European that’s why I used euros instead of dollars)

Fabian

A king once gave 3 of his servants a gold coin each and requested them to use it until his return. Two of them started using the coins to try and increase its value because you could only buy ten chocolate bars which was also very expensive back then and they wanted to be able to buy 20 or more.However One of these servants did not use the coin. Out of fear he buried the coin in the ground trying to keep it safe until the king returned hoping he would not lose it. This was a vain hope because although they had no name for inflation back then it still existed in another form. The coin was a metal and in in burying it it was exposed to the elements and we all know that all metals even gold is eroded over time when exposed to the elements. Nothing can stop nature and erosion so in time the coin not only lost its shine and lustre but also some of its weight. This meant that although the servant could not see it his coin was losing its value gradually. This meant that after a year instead of being able to buy 10 bars of chocolate he could only buy 7/8 now although his coin still looked more or less the same after cleaning it. Leaving the coin where it was made it lose even more value after another year because the price of chocolate had also gone up so now he can only buy 4 bars with the same coin, even though the coin had not changed. If he had bought and planted corn or beans his coin would by now have increased in value because he would have had more than one coin by now and could have bought 50 bars of chocolate or more. If left in the ground longer/long enough the coin will eventually not be enough to even buy one bar of chocolate and this is how inflation works. Although your money looks the same every year inflation decreases its value consistently. If not applied properly to increase its buying power you will have less if it for your own use every year meaning with the same amount you will be able to buy less chocolates every year.

Tarek

“The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it… But though labour be the real measure of the exchangeable value of all commodities, it is not that by which their value is commonly estimated… Every commodity, besides, is more frequently exchanged for, and thereby compared with, other commodities than with labour.” – Adam Smith, The Wealth of Nations, 1776
George Washington was paid a salary of $25,000 a year from 1789 to 1797 as the first president of the United States. The current salary of the president has recently been doubled to $400,000, to go with a $50,000 expense account, a generous pension and several other benefits. Has the remuneration improved?Making a comparison using the CPI for 1790 shows that $25,000 corresponds to over $615,000 today, so the recent raise means current presidents have an equal command over consumer goods as the Father of the Country.When comparing Washington’s salary to an unskilled worker, or the measure of average income, GDP per capita, then the comparable numbers are $11 to $30 million. Granted that would not put him in the ranks of the top 25 executives today that make over $200 million. It would, however, be many times more than any elected official in executives today that make over $200 million. Finally, to show the “economic power” of his wage, we see that his salary as a share of GDP would rank him equivalent to $1.95 billion.

Courtois

Inflation is: a)blowing up a water splash toy or b) letting the air out of the water splash toy? Actually, while we say “inflate” to blow it up, that is a good metaphor, as it’s only air, and as when the air is let our or leaks out eventually, it will deflate. Using the Mars bar is a genius stroke – in fact, imagine a genie blowing into your bank account and it’s inflating and inflating, but as with any water splash toy, it gets to a point and stops being able to accept more air. So it seems to stay ‘solid’ but we know it’s losing air all the time. And when you finally come out of the water after a few hours, it is almost collapsed to its original flatish shape. Yet while you were in the water it seemed “solid”. This is one way to view inflation.
A “why” you mentioned earlier – we are trained to learn things in certain ways. The school system is a classic example of an institution that will stay solid to ensure its ongoing livelihood – no questions. I saw this while in grad school in the U.S. – many professors, teachers and those dependent for livlihoods on the education system had a vested interest in keeping the same questions being funded and no answers being found…or the golden egg would dry up. Why has there been so much research on the “cure” for cancer rather than prevention? Why is so much research money going to drugs? In many cases, people’s livelihoods depend on this cycle – anytime you bemoan the “institutions” your neighbor is working in one to take care of his/her family.
Getting back to your question (!) I think children will understand the water toy metaphor – and even their parents. Stay with the MARS bar info, and espcially the lack of correct media coverage – that it IS NOT 2-3%. Thank you for that information – this day’s message alone is worth money for that perspective.

Karen

If I look at a three year old child (who by the way ‘knows’ nothing’ about investing or the value of money-or taxes etc)…… I would say:
‘Look, what you have now and what can get you certain things that you like and need won’t be worth much soon as there are people who will take part of that away from you and there is noting that you can do about it. So you won’t be able to get what you need and like any longer from what you have now. But if you take what you have now, and put it into the right places (like silver and gold investing), it will secure what you have, no one will take it and it will make more if you have a little patience….’
(Then I would explain to my 3 year child what patience is on the example of nature, say feeding the ducks in the pond who are waiting patiently for us to throw the bred in…)