I read somewhere that if people knew the amount of money inflation stole from them, they would get on the street to protest.
This quote from Mr Leke Alder, in his book Minding Your Business, puts it simply enough:
“Wealth is not so much about what you have in your bank account. Indeed the money you stored in your bank account can depreciate even if you don’t touch it. If the rate of inflation is higher than the rate of interest you earn on your fixed deposit, you are losing money, every day. Your money can buy less and less if the rate of appreciation is less than the depreciation rate.”Leke Alder, Minding Your Business
Economists call this principle the time value of money: the idea that the money available to you today is worth more than the same amount of money at a future date.
Why Should I Care About Inflation?
Two words: Purchasing Power.
Inflation erodes the value of your money. So each year, a 1,000 naira note buys you less and less stuff.
You should care about inflation because you want to keep as much of what you earn. That means you want to earn interest on your money higher than the prevailing inflation rate.
Especially in Nigeria where government policies are irrational, there must be an urgency to protect your money. The country had gone from a single digit annual inflation of 5 per cent in 2007 to double-digit inflation of over 12 per cent in 2018. That’s more than a 100 per cent rise in just 11 years!
What Can I Do About Inflation?
Saving your money in a bank account doesn’t help. You get only about 4.2 per cent yearly interest on your money. And you can’t even bank on that – card maintenance and SMS fees more than wipes off the supposed interest.
Even the fixed deposit rate in most commercial banks is between 7 per cent and 12 per cent.
Any savings or investment instrument below the inflation rate isn’t worth it.
So what do you do?
The average yield of treasury bills is over 12 per cent, while the inflation rate year-on-year is around 11.37 per cent.
Also, the yield of money market funds has been above 13 per cent since the beginning of 2019.
These are low-risk options that would protect your earnings.
I would conclude with this sage advice from Fifty Cent, the get-rich-or-die-trying rapper:
“Concentrate on your money. Try to hold your paper. It takes money to make money, so save your money, opportunities come.”