• Two in five (39%) adults are unaware of how inflation impacts the value of their savings
  • People in their twenties and forties are the most unclear about this

Understanding and awareness of how inflation impacts people’s savings is low across the UK population, with two fifths (39%) not knowing about this at all, according to research from Tesco Bank.

The rate of inflation is important for consumers as it shows how much the price of goods are rising by, and how much it could be reducing consumers’ purchasing power. Among those who don’t fully understand what inflation does, 11% incorrectly believe inflation increases the value of savings, while 7% think inflation does nothing. One in five (20%) reveal they simply aren’t sure what inflation means.

Nearly half (49%) of those in their twenties and their forties are unsure how inflation can impact their savings. While those in their twenties are the group most likely to incorrectly identify whether savings values go up or down with inflation (23%), those in their forties are highest (27%) for revealing they simply don’t know what the impact of inflation is.

Understanding of inflation and the impact to people’s savings by age

 

 

  National Average 20s 30s 40s 50s 60s 70s
It increases the value of savings 11% 23% 17% 12% 6% 5% 4%
It decreases the value of savings 61% 51% 56% 51% 58% 73% 77%
It has no impact on savings 7% 7% 8% 10% 10% 5% 3%
I don’t know 21% 19% 20% 27% 26% 17% 16%
NET: unaware of how inflation impacts savings 39% 49% 44% 49% 42% 27% 23%

Chris Henderson, Save and Pay Director, Tesco Bank said: “Given the cost of living, it’s concerning that so many people are in the dark on inflation and the impact it has on their money.

“Knowing what inflation does to your money, and how you can protect your savings when the inflation rate is higher, is an important part of managing personal finances. When the rate of inflation is on the rise, it means the costs of things in our everyday lives are going up more quickly, so the money we have in the bank doesn’t stretch as far. As an example, if inflation remains at 3.5% for the next 12 months, the £100 you have in the bank today would buy you £96.62 worth of goods in a year’s time*.

“The truth is that inflation is different for everyone depending on what you buy, or pay for, each month but being aware of the UK’s inflation rate is important.

 

“While there is no fail-safe way to protect your money from inflation, making sure you are getting a competitive interest rate on your savings can certainly help.”

*Compounding inflation applied after 1 year. Calculation =

(1 + 0.035) = 1.035

£100 / 1.035 = £96.62

Inflation is a compound factor, so if inflation in any given year leads to higher prices, higher prices are the starting point for next year’s inflation.



Commentary » Financial Education » Latest



Leave a Reply