See what inflation does to your cash savings: test your skills
Inflation slowly reduces what cash can buy. That is fine for short-term money — and a reason long-term money needs a different home. Answer each question to see the explanation; your score appears at the end.
This test checks that you can
- Explain nominal and real returns
- Know when holding cash is right
- See why long-term money needs growth potential
- Practice
1. A real return is roughly…
- Practice
2. Which money is fine to hold in cash?
- Practice
3. A balance that grows 1% while prices rise 3%…
- Key idea
4. Which statement best explains "The balance can grow while value shrinks"?
- Key idea
5. Which statement best explains "Stability is worth something"?
- Key idea
6. Which statement best explains "Time magnifies inflation"?
- Action plan
7. In the action plan, which step comes first?
- Mistake to avoid
8. Which of these is a mistake this lesson warns against?
- Mistake to avoid
9. Which of these is a mistake this lesson warns against?
Savings pay 2% and inflation is 3.5%. What is the approximate real return?
Show the answer
About −1.5%
2% − 3.5% = −1.5%.
Look up your savings rate and subtract a recent inflation figure to estimate your real return.
More tests in this bootcamp
- Size your emergency fund for real life
- Is it an emergency? Decide before you spend
- Find room in your budget for an emergency fund
- Give your cash three jobs: spending, buffer and emergencies
- Compare high-yield savings beyond the headline rate
- Rebuild your emergency fund after a setback
- See what inflation does to your cash savings
- Final exam: Emergency fund and savings