To keep purchasing power, your savings should earn what relative to inflation?

To keep purchasing power, your savings should earn what relative to inflation?

• A. Less than inflation
• B. Equal to inflation
• C. Higher than inflation
• D. Not related to inflation

Answer: (C)

Preserving purchasing power means your savings must earn more than inflation. Inflation reduces the value of money over time, so if your savings grow at a rate lower than inflation, you’ll be able to buy less in the future. If returns match inflation, purchasing power stays roughly the same but doesn’t increase. If returns exceed inflation, your real purchasing power rises because your money grows faster than prices do. If returns have nothing to do with inflation, you’re not reliably protecting against rising costs. So, to keep and potentially grow purchasing power, you want a return higher than inflation.

Preserving purchasing power means your savings must earn more than inflation. Inflation reduces the value of money over time, so if your savings grow at a rate lower than inflation, you’ll be able to buy less in the future. If returns match inflation, purchasing power stays roughly the same but doesn’t increase. If returns exceed inflation, your real purchasing power rises because your money grows faster than prices do. If returns have nothing to do with inflation, you’re not reliably protecting against rising costs. So, to keep and potentially grow purchasing power, you want a return higher than inflation.