Purchasing Power

Purchasing power is how much your money actually buys, as opposed to how large the number is. At 3% inflation, $100 buys what $97 bought a year ago, and over 25 years it loses roughly half its value. This is the concept that turns a 'safe' 1% savings account into a guaranteed loss when inflation runs at 3%, and the reason long-horizon money belongs in assets that grow rather than in cash that merely doesn't fall in nominal terms.