June 10, 2025 • 11 mins
Welcome back to The Wealth Effect. In today’s episode, we dig into a question that challenges the way most people think about wealth: What is the real value of your money?
It’s not how much you have. It’s what that money can do.
This episode is about purchasing power, the true measure of financial strength. From inflation to lifestyle creep, from salary illusions to global cost-of-living differences, we explore why your money today might be worth less than you think… and what you can do about it.
You’ll learn:
- Why inflation erodes wealth—even in a growing bank account
- How to think in real dollars, not just nominal ones
- Why investments, not savings, are essential to preserve value
- How lifestyle inflation quietly traps the middle class
- What digital currencies and global mobility mean for your future
If you want to protect your standard of living, your future retirement, and your financial freedom, this is the episode for you.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Welcome back to
(00:00):
The Wealth Effect.
I'm your host,
Green Moon.
And today, we're talking
about real money.
We earn it, we spend it, we
save it, and we invest it.
But what is the
real value of money?
The answer isn't as simple as checking
your bank balance or counting the bills in
your wallet.
The real value of money is not
just about how much you have.
(00:22):
It's about what
that money can buy.
This concept is known
as purchasing power.
And it is one of the most vital, yet
misunderstood elements in personal
finance and
economic health.
Today, we'll explore what purchasing
power means, how it changes over time,
why it matters more than the face value
of your money, and how individuals and
(00:43):
governments can protect
it or destroy it.
Let's fill
your pocket.
Let's start off with
what is purchasing power.
Refers to the quantity of goods
and services money can buy.
It answers the simple question,
how far does your dollar go?
You could be earning more dollars every
year, but if prices are rising faster than
(01:03):
your income, you're not getting
richer, you're falling behind.
For example, if $100 could buy you a cart
full of groceries in 1995, but only get
you a half cart in 2025, the purchasing
power of that $100 has decreased.
The value of money
hasn't changed.
Numerically, it still says $100 on
(01:25):
that bill, but it just buys less.
A quick perspective
on its history.
The U.S.
dollar, once tied to gold, has lost over
90% of its purchasing power since 1913,
when the Federal
Reserve was created.
In 1913, $1 could buy you
what would cost $30 today.
(01:46):
The erosion of your purchasing power
due to its natural enemy, inflation.
Inflation is the silent
enemy of purchasing power.
It refers to the general increases in
prices over time, and it is measured by
indices like the Consumer
Price Index or CPI.
Inflation is the general rise in prices
(02:09):
over time, and as prices increase,
the real value of
your money declines.
It doesn't buy
what it used to.
Let's look at
some examples.
In 1970, the average new
car cost around $3,500.
In 2025, the same average new car
could cost up to $48,000 or more.
(02:32):
This is why purchasing power is
inversely related to inflation.
When inflation rises,
purchasing power falls.
When inflation is low, or during times
of deflation, purchasing power rises.
The dollar has
become less powerful.
Inflation compounds
slowly but steadily.
Even a 3% inflation rate cuts purchasing
(02:55):
power in half in roughly 24 years.
That means your dollar loses half its
purchasing power in a single generation.
This is why saving money in a checkings
account that earns near zero interest is,
in effect, losing money
in purchasing terms.
And there are a few causes to
inflation and currency devaluation.
(03:16):
Understanding why purchasing power erodes,
meaning understanding the causes of
inflation, such as monetary policy,
where central banks increase the money
supply to stimulate
the economy.
But more money chasing the same
goods means each unit buys less.
There's also demand
pull inflation.
(03:37):
Strong consumer demands with
limited supplies drive prices up.
There's cost
push inflation.
When production becomes more expensive due
to oil or wages, businesses raise prices.
Currency
devaluation.
It happens when governments print
excessive currency or devalue
(03:58):
intentionally to
boost exports.
But purchasing power
falls domestically.
Inflation isn't
always bad.
But unchecked inflation
is devastating.
It has collapsed economies and destroyed
generations of savings in countries like
Zimbabwe and
Venezuela.
Nominal versus
real value.
(04:18):
This is where many people
get financially misled.
People often feel good about their salary
increases or their portfolio growth in
nominal terms.
But if inflation outpaces those
gains, you're no better off.
And in fact, you might
be worse off than before.
We often look at our
income in nominal terms.
(04:39):
This being the raw
number you see.
But what we should be really looking at
is the real value adjusted for inflation.
Here's an example.
If you earned $50,000 last year and
inflation was 2%, and this year you earned
$52,000, but inflation jumps to 6%, if
your income didn't increase by at least
(05:02):
that much, you've effectively taken
a pay cut without even realizing it.
This means every year your dollar has to
fight harder to maintain
the same standard of living.
In this example, your real
income has gone down by 2%.
You're earning more dollars,
but your dollars became weaker.
You, in theory, made more money,
(05:23):
but your real income adjusted for
inflation went down.
And this is why understanding real and
nominal value is critical
when financial planning.
And there's global differences
when it comes to money.
Purchasing power is also
affected geographically.
One dollar in New York City
might buy you a coffee lid.
(05:43):
That same one dollar in rural India or
Southeast Asia could buy you an entire
street meal.
This is the idea behind purchasing power
parity, or triple P, a metric economics
used to compare the value of
money across different countries.
By measuring how much a
basket of goods costs in each.
Triple P tells us more
(06:04):
than just exchange rates.
It tells us real
economic life.
What people can
actually afford.
Not just what their
currency is labeled as.
Multinational corporations, investors,
and economists use this metric to
understand the real
value of money globally.
Adjusted for the cost of
living and economic strength.
(06:25):
It also explains why
digital nomads can earn U.S.
dollars and live like royalty
in Thailand or Mexico.
So why does this even
matter in your life?
Here's why.
Your retirement savings are
vulnerable to inflation.
Your salary growth should outpace
inflation to protect your lifestyle.
(06:45):
Your investments need to beat inflation
just to preserve purchasing power.
Even your debt payments
are affected by inflation.
Purchasing power is what determines your
standard of living, not just your income.
And if ignored, you could think you're
thriving, when in fact,
you're slowly sinking.
Here are a few ways to
protect your purchasing power.
(07:07):
Invest.
Don't just save.
Cash under the mattress
loses value over time.
Smart investing helps you grow your
money at or above inflation levels.
Choose inflation-resistant assets,
such as stocks, real estate, tips,
which are treasury inflation-protected
securities, commodities such as gold.
(07:27):
These are traditional hedges
against fiat currency devaluation.
Increasing your
earning power.
Invest in yourself, new skills, side
income, and career leverage to try to
maintain your
real income.
Living below
your means.
Lowering consumption reduces your
vulnerability to rising prices.
(07:47):
And lastly,
global mobility.
Living or earning in different currencies
or jurisdictions with higher purchasing
power can help you save
and invest for the future.
The goal is not to hoard cash, but
to turn it into assets that maintain
or increase in real
value over time.
There are also more modern strategies,
(08:08):
such as digital currencies
as a store of value.
In response to fiat currency's decline,
many have turned to Bitcoin and other
currencies and other
cryptocurrencies as alternative.
The idea is simple.
Limited supply preserves
purchasing power.
While speculative and volatile, digital
assets represent a philosophical
(08:29):
rebellion against
inflation.
Whether they succeed long
term remains to be unseen.
But the shift in global desire for
cryptocurrencies have
allowed them to maintain
their value.
There is also the danger of lifestyle
inflation, which is a silent destroyer of
purchasing power.
Spending more than you earn without
(08:51):
actually improving the
quality of your life.
Even if your income increases,
your real freedom doesn't.
And over time, the gap between what people
spend and what they truly need to grow
becomes dangerous.
True wealth is measured by how little you
need to live well, not by
how much you can spend.
Purchasing power
and retirement.
(09:11):
Retirement planning must consider
purchasing power over decades.
It's not about
saving $1 million.
If $1 million won't even cover
basic expenses in 30 years.
That's why successful retirees invest
in inflation-beating assets, limit that,
maintain adaptable lifestyles, and
factor in healthcare and
(09:32):
housing cost inflation.
Without this awareness, retirement becomes
a period of financial vulnerability and
not security.
Purchasing power is the
real metric of wealth.
Money is a number, but
purchasing power is a lifestyle.
You can lose purchasing
power without losing money.
You can grow rich by protecting what your
(09:53):
money can buy, even if
the amount doesn't change.
Inflation, market volatility, and policy
shifts will continue to
shape the economic world.
But those who understand purchasing power
and act accordingly will rise above it.
The real value of money lies not in the
amount, but in its utility, durability,
(10:15):
and freedom
it provides.
The bottom line is, purchasing power
is one of the most powerful and most
overlooked concepts
in personal finance.
It's not just about
how much you earn.
It's about how much your money
is worth in the real world.
Your income
may rise.
Your assets
may grow.
But if your purchasing power declines,
(10:36):
your financial security is an illusion.
So next time someone is talking about
how much they make or how much they save,
ask them a
deeper question.
What can that
money really do?
Because at the end of the day,
wealth isn't measured in digits.
It's measured in options,
access, and freedom.
And purchasing power is the
gatekeeper of all three.
(10:57):
Money is valuable
in contacts.
Purchasing power is about
turning paper into possibilities.
And that only happens when you understand
what your money can do
and should do for you.
Thank you for
listening.
Until next time.
Welcome back to
(00:00):
The Wealth Effect.
I'm your host,
Green Moon.
And today, we're talking
about real money.
We earn it, we spend it, we
save it, and we invest it.
But what is the
real value of money?
The answer isn't as simple as checking
your bank balance or counting the bills in
your wallet.
The real value of money is not
just about how much you have.
(00:22):
It's about what
that money can buy.
This concept is known
as purchasing power.
And it is one of the most vital, yet
misunderstood elements in personal
finance and
economic health.
Today, we'll explore what purchasing
power means, how it changes over time,
why it matters more than the face value
of your money, and how individuals and
(00:43):
governments can protect
it or destroy it.
Let's fill
your pocket.
Let's start off with
what is purchasing power.
Refers to the quantity of goods
and services money can buy.
It answers the simple question,
how far does your dollar go?
You could be earning more dollars every
year, but if prices are rising faster than
(01:03):
your income, you're not getting
richer, you're falling behind.
For example, if $100 could buy you a cart
full of groceries in 1995, but only get
you a half cart in 2025, the purchasing
power of that $100 has decreased.
The value of money
hasn't changed.
Numerically, it still says $100 on
(01:25):
that bill, but it just buys less.
A quick perspective
on its history.
The U.S.
dollar, once tied to gold, has lost over
90% of its purchasing power since 1913,
when the Federal
Reserve was created.
In 1913, $1 could buy you
what would cost $30 today.
(01:46):
The erosion of your purchasing power
due to its natural enemy, inflation.
Inflation is the silent
enemy of purchasing power.
It refers to the general increases in
prices over time, and it is measured by
indices like the Consumer
Price Index or CPI.
Inflation is the general rise in prices
(02:09):
over time, and as prices increase,
the real value of
your money declines.
It doesn't buy
what it used to.
Let's look at
some examples.
In 1970, the average new
car cost around $3,500.
In 2025, the same average new car
could cost up to $48,000 or more.
(02:32):
This is why purchasing power is
inversely related to inflation.
When inflation rises,
purchasing power falls.
When inflation is low, or during times
of deflation, purchasing power rises.
The dollar has
become less powerful.
Inflation compounds
slowly but steadily.
Even a 3% inflation rate cuts purchasing
(02:55):
power in half in roughly 24 years.
That means your dollar loses half its
purchasing power in a single generation.
This is why saving money in a checkings
account that earns near zero interest is,
in effect, losing money
in purchasing terms.
And there are a few causes to
inflation and currency devaluation.
(03:16):
Understanding why purchasing power erodes,
meaning understanding the causes of
inflation, such as monetary policy,
where central banks increase the money
supply to stimulate
the economy.
But more money chasing the same
goods means each unit buys less.
There's also demand
pull inflation.
(03:37):
Strong consumer demands with
limited supplies drive prices up.
There's cost
push inflation.
When production becomes more expensive due
to oil or wages, businesses raise prices.
Currency
devaluation.
It happens when governments print
excessive currency or devalue
(03:58):
intentionally to
boost exports.
But purchasing power
falls domestically.
Inflation isn't
always bad.
But unchecked inflation
is devastating.
It has collapsed economies and destroyed
generations of savings in countries like
Zimbabwe and
Venezuela.
Nominal versus
real value.
(04:18):
This is where many people
get financially misled.
People often feel good about their salary
increases or their portfolio growth in
nominal terms.
But if inflation outpaces those
gains, you're no better off.
And in fact, you might
be worse off than before.
We often look at our
income in nominal terms.
(04:39):
This being the raw
number you see.
But what we should be really looking at
is the real value adjusted for inflation.
Here's an example.
If you earned $50,000 last year and
inflation was 2%, and this year you earned
$52,000, but inflation jumps to 6%, if
your income didn't increase by at least
(05:02):
that much, you've effectively taken
a pay cut without even realizing it.
This means every year your dollar has to
fight harder to maintain
the same standard of living.
In this example, your real
income has gone down by 2%.
You're earning more dollars,
but your dollars became weaker.
You, in theory, made more money,
(05:23):
but your real income adjusted for
inflation went down.
And this is why understanding real and
nominal value is critical
when financial planning.
And there's global differences
when it comes to money.
Purchasing power is also
affected geographically.
One dollar in New York City
might buy you a coffee lid.
(05:43):
That same one dollar in rural India or
Southeast Asia could buy you an entire
street meal.
This is the idea behind purchasing power
parity, or triple P, a metric economics
used to compare the value of
money across different countries.
By measuring how much a
basket of goods costs in each.
Triple P tells us more
(06:04):
than just exchange rates.
It tells us real
economic life.
What people can
actually afford.
Not just what their
currency is labeled as.
Multinational corporations, investors,
and economists use this metric to
understand the real
value of money globally.
Adjusted for the cost of
living and economic strength.
(06:25):
It also explains why
digital nomads can earn U.S.
dollars and live like royalty
in Thailand or Mexico.
So why does this even
matter in your life?
Here's why.
Your retirement savings are
vulnerable to inflation.
Your salary growth should outpace
inflation to protect your lifestyle.
(06:45):
Your investments need to beat inflation
just to preserve purchasing power.
Even your debt payments
are affected by inflation.
Purchasing power is what determines your
standard of living, not just your income.
And if ignored, you could think you're
thriving, when in fact,
you're slowly sinking.
Here are a few ways to
protect your purchasing power.
(07:07):
Invest.
Don't just save.
Cash under the mattress
loses value over time.
Smart investing helps you grow your
money at or above inflation levels.
Choose inflation-resistant assets,
such as stocks, real estate, tips,
which are treasury inflation-protected
securities, commodities such as gold.
(07:27):
These are traditional hedges
against fiat currency devaluation.
Increasing your
earning power.
Invest in yourself, new skills, side
income, and career leverage to try to
maintain your
real income.
Living below
your means.
Lowering consumption reduces your
vulnerability to rising prices.
(07:47):
And lastly,
global mobility.
Living or earning in different currencies
or jurisdictions with higher purchasing
power can help you save
and invest for the future.
The goal is not to hoard cash, but
to turn it into assets that maintain
or increase in real
value over time.
There are also more modern strategies,
(08:08):
such as digital currencies
as a store of value.
In response to fiat currency's decline,
many have turned to Bitcoin and other
currencies and other
cryptocurrencies as alternative.
The idea is simple.
Limited supply preserves
purchasing power.
While speculative and volatile, digital
assets represent a philosophical
(08:29):
rebellion against
inflation.
Whether they succeed long
term remains to be unseen.
But the shift in global desire for
cryptocurrencies have
allowed them to maintain
their value.
There is also the danger of lifestyle
inflation, which is a silent destroyer of
purchasing power.
Spending more than you earn without
(08:51):
actually improving the
quality of your life.
Even if your income increases,
your real freedom doesn't.
And over time, the gap between what people
spend and what they truly need to grow
becomes dangerous.
True wealth is measured by how little you
need to live well, not by
how much you can spend.
Purchasing power
and retirement.
(09:11):
Retirement planning must consider
purchasing power over decades.
It's not about
saving $1 million.
If $1 million won't even cover
basic expenses in 30 years.
That's why successful retirees invest
in inflation-beating assets, limit that,
maintain adaptable lifestyles, and
factor in healthcare and
(09:32):
housing cost inflation.
Without this awareness, retirement becomes
a period of financial vulnerability and
not security.
Purchasing power is the
real metric of wealth.
Money is a number, but
purchasing power is a lifestyle.
You can lose purchasing
power without losing money.
You can grow rich by protecting what your
(09:53):
money can buy, even if
the amount doesn't change.
Inflation, market volatility, and policy
shifts will continue to
shape the economic world.
But those who understand purchasing power
and act accordingly will rise above it.
The real value of money lies not in the
amount, but in its utility, durability,
(10:15):
and freedom
it provides.
The bottom line is, purchasing power
is one of the most powerful and most
overlooked concepts
in personal finance.
It's not just about
how much you earn.
It's about how much your money
is worth in the real world.
Your income
may rise.
Your assets
may grow.
But if your purchasing power declines,
(10:36):
your financial security is an illusion.
So next time someone is talking about
how much they make or how much they save,
ask them a
deeper question.
What can that
money really do?
Because at the end of the day,
wealth isn't measured in digits.
It's measured in options,
access, and freedom.
And purchasing power is the
gatekeeper of all three.
(10:57):
Money is valuable
in contacts.
Purchasing power is about
turning paper into possibilities.
And that only happens when you understand
what your money can do
and should do for you.
Thank you for
listening.
Until next time.
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