# Money Illusion

*Behavioral Finance — Finicade finance glossary*

Money illusion is thinking in nominal rather than real terms — feeling richer after a 3% raise in a 5% inflation year. It's why wage cuts through inflation are politically tolerable when explicit cuts are not, and why savers accept deposit rates below inflation. Every long-horizon financial decision should be made in real terms, which is a discipline almost nobody applies by default.

**Also known as:** nominal illusion, inflation illusion

**Related terms:** [Inflation](https://finicade.com/glossary/inflation), [Real Wages](https://finicade.com/glossary/real-wages), [Purchasing Power](https://finicade.com/glossary/purchasing-power), [Real Return](https://finicade.com/glossary/real-return), [Framing Effect](https://finicade.com/glossary/framing-effect)

Source: https://finicade.com/glossary/money-illusion