This past August bank holiday, my wife, my daughter and I took a trip to Devon with two other couples and their two kids. No real reason for it, just a chance to head somewhere different and enjoy a local British bank holiday Monday fair.
My daughter and I sat on a sun-warmed bench overlooking the park as the fair ended. I sipped on a locally brewed beer while my daughter savoured her favourite “narna” (that’s a banana to most of us). It was one of those moments where everything felt right with the world. Yet, as we shared our modest treats, I caught myself wondering how the costs of these simple pleasures have changed over time.
The price of a beer and a banana seems trivial in the moment, but when you zoom out over the years, they tell a story of economic shifts, changing values, and the silent erosion of purchasing power. Fifty years ago, in 1974, the average price of a pint of beer in the UK was around 20p. Today, that same pint costs an average of £4.70, a staggering 2,300% increase. And you can’t find a pint in London for less than £6, I can tell you that now! Similarly, a banana that might have cost 5p in 1974 now costs around 20p, reflecting a 300% increase.
These numbers may seem abstract, but they illustrate a powerful force at play: inflation. Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It’s the reason why that pint of beer and banana cost so much more today than they did in my parents’ or grandparents’ time.
The power of 72
One of the most effective ways to grasp the impact of inflation is through the “Rule of 72”. This simple formula helps you understand how long it will take for prices to double (or for your savings to halve) at a given rate of inflation. You take the number 72 and divide it by the annual rate of inflation. The result is the number of years it will take for your purchasing power to diminish by half.
For instance, if the inflation rate is 3% per year (a pretty reasonable average to use for the last 50 years), the Rule of 72 tells us that in approximately 24 years (72 ÷ 3 = 24), the value of your money will be cut in half. That means that what you could buy with £100 today would cost £200 in 24 years.
We’ve talked in past ‘Little Thoughts’ about the impact of inflation and the frightening nature of its silent work. Our role is to continue to ensure that your financial future is as well protected against inflation as possible, in a world that is ever changing.
As I finished my beer and my daughter her banana, I was struck by the simplicity of the moment compared with the complexity of economic forces at play. The rise in the cost of our simple pleasures over the decades is a reminder that inflation, though often invisible in our day-to-day lives, is a powerful force that shapes our financial reality.
In a world where prices are ever-rising, understanding inflation and its impact is essential to preserving wealth and ensuring financial security for the future. Inflation is an inevitable part of economic life, but it doesn’t have to be a silent killer of your wealth. By understanding its impact and planning accordingly, you can safeguard your financial future and continue to enjoy life’s simple pleasures, like a beer (or a banana) with your loved ones on a sunny bank holiday.
