NGPF Activity Bank

Investing
Spanish version

ANALYZE: Understanding Inflation

Saving money in a bank account that earns less in interest (ex: 0.75%) than the economy
experiences inflation (avg: 3%) leaving you with less spending power in the future. If you save $500
in a savings account now, you’ll be able to buy LESS with it in 2025 than you could today. That’s
what makes INVESTING an important part of your long-term financial health. Let’s explore
inflation a little further using this Inflation Calculator.

Suppose you’re heading off to college next year somewhere cold,

and you want to purchase a North Face parka for $350.

1. From each paycheck of your afterschool job, you’re able to save $45 toward the coat. You
get paid twice a month. How many months will it take you to save enough money to buy
your North Face jacket?

2. Using this strategy, how will inflation impact your ability to buy the jacket?

3. You’re thinking $350 is a lot of money for a high school student, and you understand that,
due to inflation, that same jacket would have cost less than $350 in the past. Use the
calculator to determine how much the same jacket, had it been available, would have cost
the year you were born.

4. How much cheaper was the coat the year you were born?

www.ngpf.org Last updated: 11/8/20

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 5. You take your answer to question 4 to your parents and say, “Hey, why didn’t you think
ahead and buy me this coat the year I was born??? Look at all the money we could have
saved!” Aside from the fact that your parents had no way of knowing you’d want a North
Face almost two decades later, your parents disagree with your logic and say there
wouldn’t have been any savings by buying the coat in your birth year. Why is your parent
making this claim?

6. Let’s say, instead of buying you the coat when you were born, your parents put money,
equal to your answer in question 3, into a savings account that earned 1% interest. Would
you be able to buy your coat today with those funds? Why or why not? You can use this
compound interest calculator if you need to.

7. So, if your parents somehow knew, the day you were born, that you’d someday want a
North Face parka for your first year of college, what would he or she have needed to do,
financially, to have $350 for the coat today?

8. You’re thinking a lot about inflation, and you think it might be a good idea to set aside the
money to buy a fancy leather couch for your first home, which you’d like to purchase 10
years after you graduate from high school. Why does the inflation calculator not tell you
what the inflation adjusted price will be 10 years from now?

BONUS: The North Face is available across Canada, and in parts of Europe, Latin America, and
Asia. Would the inflation calculator from the Bureau of Labor Statistics work to calculate the
historical price of that same North Face jacket in other countries? Why or why not? Conduct
online research to support your answer.

www.ngpf.org Last updated: 11/8/20

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