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Why don't we keep our savings in cash?

Inflation is the increase of prices in an economy over time. At the moment inflation in the UK around 3%. This means that the same basket of goods which cost £100 last year would cost £103 this year. Whilst this might not seem like much, it means the value of goods is going up but we likely have the same amount of money available to spend, so we can purchase less over time with the same income.

In economics, when we refer to things as “real”, such as “real income,” we mean we have adjusted the value to account for inflation. For instance, if your salary is £25000, in the first year you can buy £25000 worth of goods, however if prices increase and the same goods cost £27000 in the second year, your “real income” has fallen!

Why don't we keep our savings in cash?

  1. It is more difficult to spend as cash.

  2. Because the real value would decrease over time.

  3. Because thieves can’t steal money from our bank account.

Choose your answer, and share in the comments below!

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Anjali


Anjali Garg is an IGGY student mentor and a final year Economics student at the University of Warwick. 

She particularly enjoys industrial economics, which is the application of economics to firms, markets and industries. This is because she hopes to work in many different industries in the future before starting her own business. She's also interested in environmental economics and is writing her dissertation on the effect of temporarily legalising the ivory trade on elephant poaching.

 You can message Anjali at @Anjalig and see more about the Student Mentors here.