Value of money declines by 94 per cent over the past 50 years
The value of money has fallen by 94 per cent over the last 50 years, according to research from BM Savings.
An 18 fold increase in retail prices means that someone today would need £1,796 to have the equivalent purchasing power of £100 in 1960. Conversely, £5.57 in 1960 would provide the same spending power as £100 today.
Over the past 50 years, the value of money eroded most during the 1970s with retail prices rising by an average of 13 per cent a year.
Retail prices rose by the least during the 2000s with an average annual increase of 3 per cent. However, even the relatively low inflation of the past 10 years has had a marked effect on the value of money with £131 required today for the same spending power as £100 in 2000.
Over the next 50 years, the value of money could decline by 63 per cent if retail prices rise each year in line with the Government's target for consumer price inflation of 2%. If this happened, someone would need £269 in 2060 to enjoy the same spending power as an individual with £100 today.
The changing value of money is reflected in the cost of everyday items. Based on calculations by BM Savings, the average price for a pint of beer has risen 26 fold over the past 50 years from an average price of 11p in 1960 to £2.94 in 2010. The price for a pint could reach almost £8 by 2060 if prices rise by 2 per cent each year. The prices of essential household items have also risen substantially since 1960 with the average price for a loaf of bread increasing from 3p in 1960 to £1.20 in 2010; a 20 fold rise.
Successful savings and investment can help to maintain or improve an individual's nest-egg. For example, placing £100 in an instant access savings account in 1960 would have provided total gross interest of around £2,150 in the following 50 year period.
Suren Thiru, economist at BM Savings, commented: "There is no doubt that the value of money has fallen dramatically since 1960 as a consequence of the substantial rise in the general level of prices. It is likely to be reduced significantly further over the next 50 years even if inflation is kept firmly under control. However, today's typical saver is very different to half a century ago with a much greater proportion of savers now viewing their savings as an investment, whereas 50 years ago peoples' primary motive for saving was probably a precautionary one. A saver's nest-egg will still go a long way with careful financial planning."
To help savers limit the impact of inflation and changes in the cost of living on their savings, BM Savings has recently launched two new Inflation Rate Bonds with a choice of a three year or a five year investment term. The Bonds track annual inflation as measured by RPI, whilst also offering a fixed interest rate on any balances of 1.50% Gross/AER on the five year bond and 0.75% Gross/AER on the three year bond.
Both terms start on 1st June 2011 with the three year bond maturing on 2nd June 2014 and the five year bond maturing 1st June 2016. The minimum deposit is £500 and the maximum £1m. Capital is also protected so savers will not lose any of their deposit if deflation occurs.