NICHE FEATURE
Inflation
is costing your savings a fortune The price of a Cadbury’s Freddo as a cost of living index? Kris Amliwala of Designer Wealth Management explains the chocolate connection WORDS BY KERRY SMITH
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illennials could spot the green and purple packaging anywhere. Back when we were kids in the ’90s, a Freddo was 10p. The cost has steadily increased over 20-something years, reaching 30p until Cadbury’s dropped it to 25p in 2019 after Freddo’s friends protested at the inflated price. And don’t get me started on a packet of Walkers crisps… these are just prime examples of inflation. Fellow ’90s baby Kris Amliwala says that not only has the price of a Freddo increased, but the chocolate bar’s size has decreased: “That’s shrinkflation!” Kris is a Chartered Retirement Planning Specialist at Designer Wealth Management and a Fellow of the Personal Finance Society, so he knows a thing or two about inflation. “The kind of reduction in purchasing power that we’ve seen here with Freddo happens over time naturally,” he told me. You’ve probably had someone in the generation above you explain that they bought their first house for £6,000, or that they earnt £40 a week in their
full-time job back in the ’80s. That exact same house might still be there today, except now worth somewhere in the £100,000s. And that £40pw might now be £400 now. It’s all because of inflation.
But rising costs are a good thing?
The Bank of England targets rates of inflation at 2%. Kris commented: “That means the government wants prices to rise by 2% each year, which is a good thing because it keeps the economy growing.” This target helps everyone plan for the future. However, rates of inflation haven’t risen by 2% in the past couple of years. The current inflation rate is 5.4% which means the cost of living is going up. Which, at the moment, means inflation is bad? “This is important because if your cash savings were left as they are right now earning perhaps 0.1% interest – if you’re lucky – against a 2% inflation rate, it means you’re actually losing money in real terms.” An inflation calculator on Kris’s website helps to figure out
THE KIND OF REDUCTION IN PURCHASING POWER THAT WE’VE SEEN HERE WITH FREDDO HAPPENS OVER TIME NATURALLY
what the difference is that you’re losing between interest earned and rates of inflation. Kris gives a good example. If you left £10k in a Cash ISA to save for retirement over 30 years and inflation had steadily risen at the 2% target, the inflation calculator shows that your savings would effectively be worth just £5,520.71 by the time you get to retirement age. “If you’re not reviewing your cash for the longterm, it can cause real damage to your purchasing power. Whether that is cash in the bank, savings in your business, or a cash fund within your pension; If you don’t plan to use your cash in the next couple of years then it’s potentially worth thousands to look into alternatives.” To review your cash savings, find Kris’ inflation calculator at dwm.uk.com/ online-services/calculators. NICHE | 25
