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The changing value of money

The changing value of money

Category: Money

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

It's always nice to have a bit of extra money floating around, but with the combination of record low savings rates, rising prices and both inflation and the taxman eating way at any meagre returns, it can often be difficult to have much left over at the end of the month.

This financial pressure is put into even starker context when realising just how much the value of money has changed over the years. Moneyfacts' own analysis reveals that £10,000 invested five years ago would have the spending power of just £8,840 today, a fall of 11.60%, while research from Lloyds Bank paints an even bleaker picture, finding that the value of money has actually fallen by 91% over the last 40 years.

Their calculations show that someone today would need a whopping £10.5 million to have the equivalent purchasing power of £1 million in 1973, not only meaning it's a lot more difficult to achieve the millionaire's lavish lifestyle but also showing just how much the value of money has been eroded over the years.

This is largely thanks to more than a tenfold increase in retail prices over the last four decades – a pint of lager cost just 14p in 1973, for example, whereas last year it would have set you back £2.87, while a loaf of bread has gone up from 11p to £1.30 and a pint of milk from 6p to 46p.

Overall, the purchasing power of your cash has dropped by 6.1% each year since 1973, but the starkest effects for the current generation can perhaps be seen in property prices – 40 years ago the average detached property would have cost £16,980, but today it'll set you back £305,391.

An unfortunate addition to that is that wages have in no way increased to the same extent as property prices or everyday living costs, which could be why so many households are struggling to make ends meet.

Additional research from Post Office Life Insurance has found that half of parents with children under the age of 18 are reliant on two incomes in order to maintain a decent standard of living, while a worrying 4% require at least three incomes with a parent or in-law also relying on them.

With financial pressures clearly adding up, and with the value of money only expected to decline further even with moderate inflation – Lloyds figures show that if retail prices were to rise by 2.8% annually, the value of money would decline by a further 67% over the next 40 years – it's more important than ever to be prepared.

Careful financial planning is vital to make sure your money can go as far as possible. Budgeting is key, as is finding the right savings account to build your nest egg for the future (ideally one which can counter the effects of tax and inflation).

What Next?

Check out our pick of the top inflation-beating savings accounts, and if you plan carefully you can make the most of your money – even in the face of rising prices.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.