An Inflation Lesson

Inflation Lesson From A Three Pence Piece

I was adding insulation to my loft when I came across what I thought was a pound
coin. It turned out to be a 1943 brass three pence piece.

Threepence_1943

This used to be worth three old pennies, and there used to be 12 pennies in a shilling.
An old shilling is now 5 new pence, so in new money it is 1.25 pence. Not that
valuable. These days you might not stoop to pick up a penny.

I did some research as I was curious to know what the buying power of this was in
1943 expressed in current terms. After adjusting for inflation this coin had a the
equivalent buying power of £1. Over the last 70 years the buying power in
current terms has fallen from a pound to a penny. Doing more research
an antique coin dealer would ask for £1-2 for such a coin, depending on
condition. As an object it has kept its value. As money it has lost almost all its
value.

Inflation is the erosion in the buying power of fiat money. At this juncture it is
running at 2-3% per annum, meaning every year you need to pay more for the same
item. In simple terms after 10 years you need 20-30% more money to pay for the
same item. Inflation is not constant and it has been in double digit figures, as in the
1970’s.

You need to keep inflation uppermost in your mind when investing and look to do
better than it, whist at the same time trying not to lose money. Money erodes in
value whereas investments and objects can appreciate keeping up with inflation.

Update 2014

New One Pound coins have been announced, mostly to reduce fraud. They look like old thrupenny coins, and after reading this article you will appreciate the irony of this.

New 2014 Pound Coins

New 2014 Pound Coins

Chezphil Emporium