Education · 5 min read
Crypto Wealth Group ·
Have you ever looked at your savings balance, seen it creep up, and still felt like you're going backwards? If so, you've already noticed why money loses value: the number in the account can rise while the amount it actually buys at the supermarket, the petrol station or the school uniform shop gets smaller.
You're not imagining it, and you're not bad with money. It's a pattern that shows up in almost every country, over almost every long stretch of time. This article walks through three real-world settings, the United States, Australia and the wider world, so you can see the pattern for yourself in about ten minutes.
The short answer is inflation. When the general level of prices rises, each dollar buys a little less than it did before. Economists call what your dollar can buy its purchasing power.
Picture a block of chocolate you buy every week for the same price. One week the price is unchanged, but there are a couple fewer squares in the block. Nothing on the shelf says "you're getting less", yet you are. That's what inflation does to savings. The balance stays the same or grows a bit, but each dollar holds fewer squares.
A simple worked example helps. If prices rose by around 3% a year, they would roughly double in about 24 years. Money left sitting still over that time would buy about half of what it once did. That's an illustration, not a forecast, but it shows how a small, steady rate adds up over a working life.
The United States is the clearest long-run example. Since the Federal Reserve, America's central bank, was set up in 1913, the US dollar has lost more than 96% of its purchasing power by the commonly cited measure of consumer prices. Put simply, a dollar today buys a small fraction of what a dollar bought then.
Two more recent periods stand out:
For American retirement savers who kept a lot of their money in cash over decades, the effect was quiet but real. Their balances looked steady. Their buying power was not.
Australia tells a similar story with a local twist. After COVID, the Reserve Bank of Australia kept interest rates at historically low levels for a period. Cheap borrowing helped push up asset prices, especially property, while people who kept their money in cautious, low-return places earned very little.
That's worth sitting with for a moment, because many of us think of rising house prices only in terms of supply and demand. Part of the story is monetary: when money is cheap and plentiful, it tends to flow into assets and lift their prices.
What about super? Superannuation balances have generally grown. But growth on paper and growth in buying power aren't the same thing. In some investment options, sustained inflation outpaced fund returns, which means the real value of those balances took a hit. How much depended a lot on how each fund's money was spread across different types of assets.
If your super feels like it's running on autopilot, this is a useful question to understand: not just how much is in there, but what it would buy once inflation is taken into account.
No. The same pattern appears in Japan, the United Kingdom, the Eurozone and emerging economies. Over recent decades, no major developed-world currency has fully held on to its purchasing power.
The pace has varied widely. Some countries and periods saw gentle, slow erosion. Others saw sharp falls. But the direction has been remarkably consistent across very different economies and governments.
Here's the honest part. Understanding inflation is not a reason to panic, and it's not a reason to rush into anything.
Cash still does important jobs. It's stable in dollar terms, it's there when the car breaks down, and it doesn't swing around from week to week. Many other assets can fall sharply in value, and Bitcoin in particular has been very volatile throughout its history. For someone with a mortgage and kids, that volatility is a real and reasonable concern, not something to brush aside.
The point of this lesson isn't "cash is bad". It's that a savings balance and its buying power are two different numbers, and it pays to know both. That understanding is also the starting point for why Bitcoin was designed the way it was, with a fixed supply that no central bank can expand. Whether that's relevant to you is a decision for you, ideally with your own adviser, once you understand the trade-offs.
Not necessarily. Most central banks, including the Reserve Bank of Australia, aim for low and stable inflation rather than none at all. The issue for savers is that even low inflation compounds over decades, so money that isn't growing faster than prices slowly buys less.
Not automatically. A balance can rise in dollars while falling in real terms if returns are below inflation. Comparing your fund's returns with inflation over the same period gives a clearer picture, and it's a good question to raise with your fund or adviser.
There are many reasons, including population, supply and tax settings. Part of it, though, was monetary: historically low interest rates made borrowing cheap, and cheap money tends to push up asset prices.
Useful questions include: what has my super returned after inflation, how is my money spread across asset types, and how does that fit my time frame? These help you understand your position without needing to become an expert.
This is a taste of a fuller lesson in CWG's Bitcoin Foundations course. The complete US / Australian / Global Case Studies lesson goes deeper into each country and how it connects to the bigger question of what makes money hold its value. It's available to members here, and it's short enough to fit into a quiet evening.
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