Nominal and purchasing value of money

Usually we focus on prices, on the digits in the price tag. Usually we assess our welfare by the value of our account, more precisely by the numbers in the bank account. We estimate our salary by numbers in the bank check.

And in general, we often estimate each banknote precisely by its denomination, by the coveted figures printed on it. But in truth the economic situation is constantly changing, so that the real value of money can not always remain constant, like the figures on printed banknotes.

The citizens of countries that have history of serious and rapid inflation already have experience and know, that the nominal value of money is not the same that real value. Stable economic systems are able to lull our attentiveness, because the prices of goods and services change slowly, but steadily continue to grow.

Foe example, today and a year ago you could purchase a different set of goods for the same 1000 units of local currency. However, often people do not look at the purchasing power of money, only at nominal value. Usually it is connected with our psychology.

For example, it is difficult to pay 1000 dollars, but it is easier to pay 998 dollars, although the difference with prices is insignificant 0.2% (1/500 of initial price).

The miser person try to save 1000 rubles (Russian currency), although he can hardly buy something serious on this amount nowadays. Moreover, we make this mistake both at buy and sell operations for services, goods, ability to work.

Solution

The universal solution will be wise, but vague. In my opinion, we must not forget that money is a necessary tool, but not the only goal in life.

If we remove emotional dependence on money, we will eventually evaluate them more objectively. And you will find that the numbers on banknotes are not the only parameter which determines their value.

Author: Evgenii Golygin
Date: 18 August 2018, Saturday