What Is Purchasing Power| How It decreases With Inflation
Summary
TLDRThis video explains the concept of purchasing power, which is the ability to buy goods and services. It decreases over time due to inflation, causing money to lose value. For instance, a person with savings of 100 rupees might find that the same amount won't buy the same goods after a year due to a 6-7% inflation rate. To combat this, investing in assets that yield returns above inflation is advised to maintain purchasing power. The video concludes with an invitation to subscribe for more informative content.
Takeaways
- 💡 Purchasing power refers to the ability to buy goods and services with money.
- 📉 The purchasing power decreases over time due to inflation, which devalues currency.
- 💸 Inflation rates can lead to a loss in purchasing power, as the same amount of money buys less over time.
- 💼 A person with savings of 100 rupees may find that their purchasing power has decreased by 6-7% after one year due to inflation.
- 🛒 The same item that cost 100 rupees a year ago might now cost 106-107 rupees.
- 💰 To maintain purchasing power, one must invest in assets that yield returns higher than the inflation rate.
- 🏦 Investing is a strategy to preserve and potentially increase the value of money over time.
- 🌟 The video encourages viewers to subscribe for more daily content on financial topics.
- ⏰ Timely investment decisions are crucial to combat the erosion of purchasing power caused by inflation.
- 🔄 The concept of purchasing power is dynamic and requires active financial management to maintain its value.
Q & A
What is purchasing power?
-Purchasing power is the capacity to purchase goods or services with a given amount of money.
How does time affect purchasing power?
-Over time, purchasing power typically decreases due to inflation, which leads to the devaluation of money.
What is the relationship between inflation and purchasing power?
-Inflation erodes purchasing power because it causes the general price level of goods and services to rise, meaning that the same amount of money buys fewer goods over time.
Can you provide an example from the script to illustrate the impact of inflation on purchasing power?
-Yes, the example given is a man with savings of 100 rupees who, after one year with an inflation rate of about 6-7%, would find that the same item now costs 106 to 107 rupees, thus losing 6-7% of his purchasing power.
How does the man in the example make a loss due to inflation?
-The man makes a loss because the value of his savings decreases as the prices of goods increase due to inflation, requiring him to spend more money to purchase the same product.
What is the suggested solution to maintain purchasing power in the face of inflation?
-The script suggests investing money in places where the returns are higher than the inflation rate to maintain or even increase purchasing power over time.
Why is it important to invest to escape the effects of inflation?
-Investing is important to escape the effects of inflation because it allows your money to grow at a rate that outpaces the devaluation of currency, thus preserving or enhancing your purchasing power.
What is the role of interest rates in maintaining purchasing power?
-Interest rates play a crucial role in maintaining purchasing power as they can provide returns on investments that can offset the loss of value due to inflation.
How can one measure the loss of purchasing power due to inflation?
-The loss of purchasing power due to inflation can be measured by comparing the current prices of goods to their prices in the past and calculating the percentage increase required to purchase the same goods.
What are some common investment options that can help maintain purchasing power?
-Common investment options that can help maintain purchasing power include stocks, bonds, real estate, and other assets that tend to appreciate in value over time, potentially outpacing inflation.
Outlines
💵 Understanding Purchasing Power
This paragraph discusses the concept of purchasing power, which is the ability to buy goods and services. It explains how purchasing power can decrease over time due to inflation, which devalues money. The example given is a man with savings of 100 rupees who, after one year, finds that due to a 6-7% inflation rate, the same amount of money can no longer buy the same quantity of goods. The item that cost 100 rupees a year ago now costs 106 to 107 rupees. The man effectively loses 6-7% of his purchasing power. To counteract this loss, the speaker suggests investing money in ways that yield returns higher than the inflation rate, thereby maintaining or increasing one's purchasing power over time. The video concludes with a call to action for viewers to subscribe for more content.
Mindmap
Keywords
💡Purchasing Power
💡Inflation
💡Devaluation
💡Savings
💡Investment
💡Returns
💡Currency
💡Quantity of Goods
💡Loss
💡Rate of Inflation
💡Daily Content
Highlights
Purchasing power is the capacity to purchase an item at a given time.
Purchasing power decreases over time due to devaluation of money and inflation.
With inflation, the same amount of money can't purchase the same quantity of things after some time.
Example given: A man with savings of 100 rupees for one year experiences purchasing power loss due to inflation.
Inflation rate is calculated to be around 6 to 7 percent.
An item that cost 100 rupees a year ago now costs 106 to 107 rupees due to inflation.
The man incurs a loss of almost 6 to 7 percent due to inflation.
To maintain purchasing power, one must invest money where returns are above the inflation rate.
Investing in areas with returns above inflation helps to preserve purchasing power over time.
The video concludes with a call to action for viewers to subscribe for more daily content.
Transcripts
the term purchasing power is used to
define the capacity of purchasing a item
at a time the purchasing power decreases
with time as the money gets devalued
with inflation so the same amount of
money after some time can't purchase
same quantity of things for example a
man has made savings of hundred rupees
and keeps it with him for one year so if
we calculate the inflation we will get
about six to seven percent rate so the
item that was available one year ago at
the price of hundred rupees now will be
sold at 106 to seven rupees so the man
makes a loss of almost six to seven
percent and his purchasing power
decreases by the rate of inflation if he
has to buy the same product he will have
to add six to seven more reps
to escape the situation you have to
invest your money somewhere where the
returns are above inflation and
maintains your purchasing power over
time
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