Measure what savings can buy

Launch links

Student handout: https://www.financelearn.org/lessons/inflation-purchasing-power/student

Maintained teacher guide: https://www.financelearn.org/lessons/inflation-purchasing-power

LMS post file: https://www.financelearn.org/classroom/financelearn-inflation-purchasing-power-class-post.txt

Selected outcome

Saving 12-4b: Show how inflation can reduce the purchasing power of savings.

This is an independent selective correlation, not an official endorsement or a complete curriculum.

Teacher preparation

1. Open the real return calculator and set years to one.
2. Share or print the student handout.
3. Remind students that the rates are fictional and the task compares arithmetic, not products.

Fictional scenario

A fictional saver holds $5,000 for one year at a 4 percent effective annual return while prices rise by 3 percent.

Checked resources

• Real return calculator

  Students compare nominal and inflation-adjusted balances.

  https://www.financelearn.org/calculators/real-return-calculator

• Nominal and real return comparison

  Students repair the subtraction shortcut.

  https://www.financelearn.org/compare/nominal-vs-real-return

• Inflation eroder

  Students test a second inflation path.

  https://www.financelearn.org/tools/inflation-eroder

Student task sequence

1. Task 1. Calculate the statement balance after one year at 4 percent before opening the calculator.
2. Task 2. Enter 4 percent return, 3 percent inflation, $5,000, and one year. Record the exact real return and the balance in today's dollars.
3. Task 3. Compare the exact real return with the 1 percentage point subtraction shortcut.
4. Task 4. Explain in one sentence why $5,200 on the statement does not buy 4 percent more goods when prices also rise.
5. Task 5. Raise inflation to 5 percent, keep every other input fixed, and describe the sign of the real return.

Four-point evidence check

Award one point for each visible item.

• The nominal balance and real balance are both recorded.
• The exact ratio is distinguished from subtraction.
• The explanation uses purchasing power rather than only account value.
• The higher-inflation test correctly identifies a negative real return.

Extension

Test a ten-year holding period and explain why the nominal and real dollar balances separate more over time.