Over the course of the last year or so, there have been a number of global initiatives to help people improve their understanding of money; their finanical I.Q.
The Financial Times has recently launched its own finaincal literacy initiative to help readers develop a better understanding of how money works.
So what is financial I.Q.? Is it all about complex financial calculations or something much simpler? Well, its a little bit of both. To offer some clarity, let's take a closer look at a money topic that has become really important over the course of the last 6 months; inflation.
Inflation has only recently resurfaced as a problem. This is due mostly to Covid-19 disruption to manufacturing and transportation. Today, inflation is estimated to be about 3%. Why this is so important is that across Ireland, many people continue to hold significant deposits in accounts earning little or nothing by way of interest. As inflation increases, the 'buying power' of that money falls. If we take someone with €20,000 on deposit earning no interest, with inflation at 3%, it means the ‘buying power’ of that money over a 12-month period will fall to €19,400, a drop of €600. This erosion of buying power will continue to increase, or compound every year.
A traditional strategy used to counter the corrosive impact of inflation is where people opt to invest their money. By investing, they will be taking some level of risk. There are a number of options; to enrol in a pension or invest outside of the pension structure. Both harness the power of compound growth over time. However, the pension route can be viewed by some people as more efficient due to tax-relief available from Government. However, all investments carry risk and one should seek independent financial advice before taking any final investment decision.
While not all investments are the same, the general objective is to invest so that the investment return is greater than the prevailing rate of inflation. This should at least maintain the buying power of money during periods of higher inflation.
Aviate Credit Union is an active supporter of better money skills and offers employers a number of financial skills talks at their place of employment or online. To find out more, simply contact our team at info@aviatecu.ie.
Over the course of the last year or so, there have been a number of global initiatives to help people improve their understanding of money; their finanical I.Q.
The Financial Times has recently launched its own finaincal literacy initiative to help readers develop a better understanding of how money works.
So what is financial I.Q.? Is it all about complex financial calculations or something much simpler? Well, its a little bit of both. To offer some clarity, let's take a closer look at a money topic that has become really important over the course of the last 6 months; inflation.
Inflation has only recently resurfaced as a problem. This is due mostly to Covid-19 disruption to manufacturing and transportation. Today, inflation is estimated to be about 3%. Why this is so important is that across Ireland, many people continue to hold significant deposits in accounts earning little or nothing by way of interest. As inflation increases, the 'buying power' of that money falls. If we take someone with €20,000 on deposit earning no interest, with inflation at 3%, it means the ‘buying power’ of that money over a 12-month period will fall to €19,400, a drop of €600. This erosion of buying power will continue to increase, or compound every year.
A traditional strategy used to counter the corrosive impact of inflation is where people opt to invest their money. By investing, they will be taking some level of risk. There are a number of options; to enrol in a pension or invest outside of the pension structure. Both harness the power of compound growth over time. However, the pension route can be viewed by some people as more efficient due to tax-relief available from Government. However, all investments carry risk and one should seek independent financial advice before taking any final investment decision.
While not all investments are the same, the general objective is to invest so that the investment return is greater than the prevailing rate of inflation. This should at least maintain the buying power of money during periods of higher inflation.
Aviate Credit Union is an active supporter of better money skills and offers employers a number of financial skills talks at their place of employment or online. To find out more, simply contact our team at info@aviatecu.ie.