1. What is INFLATION?

Inflation can be described as the rise in prices of common goods and services over time.

2. How does inflation AFFECT us?

As prices increase over time, we need to spend more money that will cause our expenses to increase or become ‘bigger’. Hence, the money we have today will become less valuable or ‘smaller’ in the future.

Let’s take a look at the example below to understand how our money can become ‘smaller’.

If the cost of bubble tea in year 2020 is RM10 and you have RM50, you can buy 5 bubble teas. But if the price of bubble tea goes up to RM12 in year 2021, you can only buy 4 bubble teas instead of 5 with the same RM50.
 
 
 
 
 

Due to inflation, the same RM50 can only buy 4 bubble teas in 2021 vs 5 in 2020. Do you see how the value of RM50 has become ‘smaller’ in 2021? This is the IMPACT of inflation.
 
 
 
 
 
 
 
 
 

3. Can we STOP inflation?

Unfortunately, we cannot stop inflation because it is not within our control.

Imagine inflation as rainy weather. We can’t stop rain from falling, but we can be prepared to face the rain if we have an umbrella or a raincoat.

Although we cannot stop inflation, we can still MANAGE inflation.

4. How can we MANAGE inflation?

We can manage inflation by ‘growing’ our money. When our money ‘grows’, we can still afford to buy the things we want even though it will be more expensive in the future. At the same time, growing our money is important to help us answer ‘how much more’ is needed in addition to the money we have to pay for what we want.

Question

If you have RM50 and you wish to buy 5 bubble teas at the price of RM12 each, how much more money do you need?

• RM5
• RM10
• RM12
• RM60

Based on the answer, we can see that RM10 more is needed and conclude that the RM50 we have needs to grow to RM60 so we can buy 5 bubble teas in the future.

5. But how can we GROW our money?

We can grow our money over time by saving and investing to earn INTEREST. We earn interest by saving in the bank or investing our money in certain financial products. When we save in the bank, we are actually ‘lending’ money to the bank and the bank pays us a fee known as INTEREST.

There are two kinds of interest - simple interest and compound interest.

Bank lends Dollah RM1,000 (principal amount) at
5% interest rate

Dollah pays back RM1,050 = RM1,000 (principal amount) + RM50 (simple interest)

Now that we understand what simple interest is, let’s look at how simple interest can help our money grow!

Dollah decides to save RM10,000 in a fixed deposit account at Bank A for a period of 1 year with interest of 3.5% per year.

Question 1

How much interest will Dollah earn?

Simple Interest Calculation
Use the formula : P x r x n
P: Principal amount, r: annual interest rate, n: term(no. of years)

• RM2,857
• RM35
• RM350
• RM35,000

Question 2

What is the total amount of money that Dollah will have?

• RM350
• RM10,000
• RM10,035
• RM10,350

7. What is COMPOUND INTEREST?

COMPOUND INTEREST is
simply interest earned on interest.
If Dollah were to save his money in the account for a longer period of time, his interest will earn interest. This effect is known as COMPOUNDING.

Question 1

How much interest will Dollah have at the end of 5 years?

Compound Interest Calculation
Use the formula : P x (1 + r)^n - P

• RM1,876.86
• RM11,876.86
• RM350
• RM34,840.33

Question 2

What is the total amount of money that Dollah will have at the end of 5 years?

• RM1,876.86
• RM8,123.14
• RM10,000
• RM11,876.86

1. How can GOALS help us?

By setting a goal, we can plan our steps to reach our goal and be more aware of the challenges we might face in the future.

It is important to understand that there are short-term goals and long-term goals.

2. What are the differences between short-term goals and long-term goals?

Short-term goals are goals that can be achieved within the near future. We can define the near future as within one year. For example opening a bank account, tracking expenses and making a list of needs and wants.

Sometimes, achieving our short-term goals can help us reach our long-term goals.

Long-term goals are goals that would require a longer time to achieve such as getting a degree, owning a house or even preparing to visit another planet.

Example of a long-term goal:
Buying a house

Example of short-term goals:
1. Saving money
2. Surveying properties
3. Checking credit score
4. Applying for loan

3. How do we achieve our goals?

It is important to plan our steps in order to achieve our goals. What resources do we need in order to fulfil the requirements for our goals? Some goals require a certain amount of money, and some goals also require us to develop certain skills or knowledge.

In order to ensure that we have sufficient money for both our short-term and long-term goals, we should have a financial plan. This includes:

a) Understanding needs and wants
(Module 1)
b) Budgeting spendings and expenses
(Module 2)
c) Protecting our wealth (Module 3)
d) Spending wisely (Module 4)
e) Saving wisely to combat inflation
(Module 5)
f) Asking questions and seeking help
(Module 5)

You will learn these skills in this module, as well as in the other modules!