You must have heard your parents talk about how things were so cheap years ago. Did you wonder why? It's inflation!

This month, let us take a look at some important concepts related to money. How much does your favourite pizza cost? How much did it cost three years ago? If you do not know, ask your parents. It is likely that the same pizza cost less by at least 20 per cent or more. Are you surprised?

If you look around you will find that the price of just about everything increases over time. There are a few items like mobile handsets, computers, TV and so on where the prices have come down. But the price of almost all essential goods go up over time. The price rise is not just limited to goods. Services like hair cut, school fee and tuition fee also get expensive by the day.

This phenomenon of rising prices is called inflation. Inflation is a stealthy way by which your money is taken from you. How so? Your purchasing power keeps declining with time. Say, you have saved around Rs 500 of your pocket money. Let us assume that you can purchase a movie ticket at your favourite multiplex along with a large popcorn and a large cola with your Rs 500. However, in two years time, the price of all three — movie ticket, popcorn and cola — go up by 30 per cent. What happens to your purchasing power? Obviously, you are not going to get all three. You may have to forgo one of them. Or you may have to go to a rundown movie hall and have a small popcorn and a small size cola. It is definitely not fun!

In an inflationary world, you are always running the Red Queen's race. You need to have more and more money just in order to keep up with the rise in prices. In the book Through the Looking Glass, Alice meets the Red Queen, in whose country it takes all the running one can do, to stay in the same place.

So, is it all gloomy and doom because of inflation? Not really. In our future columns we will see how we can win the race against inflation. If you can do that, you can have your pizza and eat it too!

Money Trivia : Hyperinflation results when inflation spirals out of control and the populace loses confidence in the currency. There have been few spectacular cases of hyperinflation in history, as that of Weimar Germany hyperinflation in 1923.

At the height of this hyperinflation, people were shopping with wheelbarrows full of money. Restaurants refused to print price lists as the price of food being served was going up every day! People were paid by the hour and they rushed to spend this money before it became worthless the next day.

Young World Money-Wizards Quiz #5

What are the indices used by the government to measure inflation in India? What are the major constituents of these indices? Does your household expenses inflate at the same rate as the government inflation measures?

If you know the answers, email your answers to youngworld@money-wizards.com. The first four correct answers and the most articulate answer within seven days will each be awarded flipkart evouchers worth Rs. 250. The results and the answers will be published at www.money-wizards.com

About Money-Wizards: A company in financial literacy and money education. They conduct workshops and after school classes on money education for school children. If you want Money-Wizards programmes in your school or neighbourhood, write to Info@Money-Wizards.com

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