Can you explain the mechanism of money inflation?
The mechanism of supply and demand is imperfect.  Producers don't know exactly how many purchasers/consumers for a good there are.  Some goods, by their nature, are in short supply, and some are plentiful. The process of price discovery is one where (in a nominally free market) producers and purchasers make offers and counter-offers to assess what the price should be.  As they do this the historical price changes, usually floating around some long-term average.  As it goes up, we experience inflation.  As it goes down, deflation. However, there isn't a fixed supply of producers and purchasers, so as new ones arrive and old ones leave, this too has an impact on supply and prices. Money (either in electronic or physical form) needs to be available to reflect the transactions and underpin the economy. Most central banks (at least in more established economies) aim for inflation of 2-4% by controlling the availability of money and the cost of borrowing new money.  There are numerous ways they can do this (printing, issuing bonds, etc.). The reason one wants some degree of inflation is because employees will never accept a pay cut even when one would significantly improve the overall economy.  Companies often decrease their prices in order to match lower demand, but employees don't usually accept decreased wages for decreased labour demand. A nominal degree of overall money inflation therefore solves this problem.  Employees who get a below-inflation wage increase are actually getting a wage cut. Supply and demand must be matched and some inflation is the inevitable consequence of this. Assuming constant velocity, inflation is caused by the difference between the growth in the money supply and growth in real output. In other words, this means that the money supply growing faster than output is expanding causes inflation to arise. In simple terms, inflation is a result of too much money chasing too few goods, i.e. there is an imbalance between demand and supply. The demand exceeds the supply. With all other things being constant it leads to increase in price, i.e. inflation. I don't think this can be explained in too simple a manner, but I'll try to keep it simple, organized, and concise. We need to start with a basic understanding of inflation. Inflation is the devaluing of currency (in this context) over time. It is used to explain that a $1 today is worth more than a $1 tomorrow. Inflation is explained by straight forward Supply = Demand economics. The value of currency is set at the point where supply (M1 in currency speak) = demand (actual spending). Increasing the supply of currency without increasing the demand will create a surplus of currency and in turn weaken the currency as there is more than is needed (inflation). Now that we understand what inflation is we can understand how it is created. The US Central Bank has set a target of around 2% for inflation annually. Meaning they aim to introduce 2% of M1 into the economy per year. This is where the answer gets complicated. M1 (currency) has a far reaching effect on secondary M2+ (credit) currency that can increase or decrease inflation just as much as M1 can... For example, if you were given $100 (M1) in new money from the Fed you would then deposit that $100 in the bank. The bank would then store 10% (the reserve ratio) in the Fed and lend out $90 (M2) to me on via a personal loan. I would then take that loan and buy a new car. The car dealer will deposit the $90 from my car loan into the bank who would then deposit 10% with The Fed and his bank would lend out $81... And the cycle will repeat... Any change to the amount of liquid currency (be it M1 or M2+) can cause inflation to increase or decrease. So if a nation decides to reduce its US Dollar Reserves that can inject new currency into the market (although the currency has already been printed it wasn't in the market). The currency markets aim to profit on currency imbalances and in reality momentary inflation/deflation between currencies. Your question asks about the mechanism of money inflation - not price inflation.  Money inflation occurs when new money is introduced into an economy.  The value of money is subject to supply and demand like other items in the economy.  The effects of new money can be difficult to predict.  One of the results of additional money can be rising prices.  These rising prices can be concentrated in one particular area - stocks, homes, food - or they can be spread out over many items.  This is true regardless of the form of money being inflated - gold, silver, or paper money.  There were times in history when large discoveries of gold and silver were found that caused prices to rise as a result.  Of course, the large discoveries of gold and silver pale in comparison to the gigantic discoveries by central banks of new fiat currency. An economy produces goods and services and people use money to pay for those goods and services.  Money has value because people believe that they can buy and sell goods and services with it in that economy. How much the value of money is, is determined by how much money there is in comparison to goods and services (supply and demand). In most economies it is the job of the federal/national reserve bank to ensure that prices stay stable (ie the relationship of goods and services to how much money there is is stable); as this is necessary for a well running economy.  The federal reserve bank does so by making more (printing, decreasing interest rates) or less (increasing interest rates) available to the economy. To determine how much money needs to be in the economy to keep prices stable is incredibly hard as many factors have an impact: If the reserve bank gets it wrong and there is more money compared to goods and services than previous, prices will rise to compensate; this is inflation If it's the other way round is deflation. Since it is commonly regarded that deflation is much more destabilizing to an economy than inflation the reserve banks tend to err on the side of inflation.
Talk freely about what you can now do because of saving. If you plan to retire sooner than most, or more comfortably than most, and can tie that to something you want them to do, show them that. If you buy a very nice car, or install a pool, and they wish they could afford that, tell them it took 5 or 10 or 20 years to save up for it, at x a week, and now you have it with no loan. Or be a cautionary tale: wish you had something, and regret not having saved for it. Young adults are generally well served by knowing more of parental finances than they did while they were dependents. Ask them if they will want or need to fund parental leaves, make a down payment for a house, own vacation property, put a child through post secondary education (share the cost of theirs including living expenses if you paid them), or go on amazing vacations fairly regularly. Tell them what those things cost in round figures. Explain how such a huge sum of money can accumulate over 2, 5, 10 years of saving X a month. for example $10 a week is $500 a year and so on. While they may not want to save 20 years for their downpayment, doing this simple math should let them map their savings amounts to concrete wishes and timeframes. Finally, if this is your own child and they live with you, charge them rent. This will save them from developing the habit of spending everything they earn, along with the expensive tastes and selfish speaking habits that come with it. Some parents set the rent aside and give it back as a wedding or graduation present, or to help with a downpayment later, but even if you don't, making them live within their true means, not the inflated means you have when you're living rent-free, is truly a gift. I have been charting the CPI reported inflation rate vs . the yeald on the 10-year T-note. Usually, the two like to keep pace with each other. Sometimes the T-note is a bit higher than the inflation rate, sometimes the inflation rate is a bit higher than the T-note yeald. One does not appear to follow the other, but (until recently) the two do not diverge from each other by much.  But all that changed recently and I am without an explanation as to why. Inflation dropped to zero (or a bit negative) yet the yeald on the 10-year T-note seemed to seek 2%.  Edit: If you give this response a downvote then please be kind enough to explain why in a comment.  Edit-2: CPI and 10-year T-note are what I have tracked, and continue to track. If you do not like my answer then provide a better one, yourself. When we speak about a product or service, we generally refer to its value. Currency, while neither a product or service, has its own value. As the value of currency goes down, the price of products bought by that currency will go up. You could consider the price of a product or service the value of the product multiplied by the value of the currency. For your first example, we compare two cars, one bought in 1990, and one bought in 2015. Each car has the same features (AC, radio, ABS, etc). We can say that, when these products were new, each had the same value. However, we can deduce that since the 1990 car cost $100, and the 2015 car cost $400, that there has been 75% inflation over 25 years. Comparing prices over time helps identify the inflation (or devaluation of currency) that an economy is experiencing. In regards to your second question, you can say that there was 7% inflation over five years (total). Keep in mind that these are absolute cumulative values. It doesn't mean that there was a 7% increase year over year (that would be 35% inflation over five years), but simply that the absolute value of the dollar has changed 7% over those five years. The sum of the percentages over those five years will be less than 7%, because inflation is measured yearly, but the total cumulative change is 7% from the original value. To put that in perspective, say that you have $100 in 2010, with an expected 7% inflation by 2015, which means that your $100 will be worth $93 in 2015. This means that the yearly inflation would be about 1.5% for five years, resulting in a total of 7% inflation over five years. Note that you still have a hundred dollar bill in your pocket that you've saved for five years, but now that money can buy less product. For example, if you say that $100 buys 50 gallons of gasoline ($2/gallon) in 2010, you will only be able to afford 46.5 gallons with that same bill in 2015 ($2.15/gallon). As you can see, the 7% inflation caused a 7% increase in gasoline prices. In other words, if the value of the car remained the same, its actual price would go up, because the value stayed the same. However, it's more likely that the car's value will decrease significantly in those five years (perhaps as much as 50% or more in some cases), but its price would be higher than it would have been without inflation. If the car's value had dropped 50% (so $50 in original year prices), then it would have a higher price (50 value * 1.07 currency ratio = $53.50). Note that even though its value has decreased by half, its price has not decreased by 50%, because it was hoisted up by inflation. For your final question, the purpose of a loan is so that the loaner will make a profit from the transaction. Consider your prior example where there was 7% inflation over five years. That means that a loan for $100 in 2010 would only be worth $93 in 2015. Interest is how loans combat this loss of value (as well as to earn some profit), so if the loaner expects 7% inflation over five years, they'll charge some higher interest (say 8-10%, or even more), so that when you pay them back on time, they'll come out ahead, or they might use more advanced schemes, like adjustable rates, etc. So, interest rates will naturally be lower when forecasted inflation is lower, and higher when forecasted inflation is higher. The best time to get a loan is when interest rates are low-- if you get locked into a high interest loan and inflation stalls, they will make more money off of you (because the currency has more value), while if inflation skyrockets, your loan will be worth less to loaner. However, they're usually really good about predicting inflation, so it would take an incredible amount of inflation to actually come out on top of a loan. Inflation can be a misleading indicator. Partly because it is not measured as a function of the change in prices of everything in the economy, just the basket of goods deemed essential. The other problem is that several things operate on it, the supply of money,  the total quantity of goods being exchanged, and the supply of credit. Because the supply of goods divides - as more stuff is available prices drop - it's not possible to know purely from the price level, if prices are rising because there's an actual shortage (say a crop failure), or simply monetary expansion. At this point it also helps to know that the total money supply of the USA (as measured by total quantity of money in bank deposits) doubles every 10 years, and has done that consistently since the 1970's.  USA Total Bank Deposits So I would say Simon Moore manages to be right for the wrong reasons. Despite low inflation, cash holdings are being proportionally devalued as the money supply increases. Most of the increase, is going into the stock market. However, since shares aren't included in the measures of inflation, then it doesn't influence the inflation rate. Still, if you look at the quantity of shares your money will buy now, as opposed to 5 years ago, it's clear that the value of your money has dropped substantially.  The joker in the pack is the influence of the credit supply on the price level. Hyperinflation doesn't mean armaggedon. There have been hundreds of fiat currencies that have ended in hyperinflation i.e. wiemar republic (which the germans fully recovered from in less than 10 years before trying to take over europe).   Most all pawn shops buy gold/silver, especially during hyperinflation will people be buying gold/silver. You can't have hyperinflation without demand of commodities going through the roof, that is the driver of inflation. When this happens you can be gauranteed people will buy your gold/silver.  In the Wiemar republic, some people bought gold/silver for 1/10,000,000 what they sold it for. But they still lost 99% of their value because the mark still devalued another 1,000,000 times. Because of this, many people aren't even looking to sell it, until they absolutely need it's value. I.e. it's a piggy bank.   The best way to deal with a gold/silver stash is to hide it, you can't steal what you can't find. There's a reason pirates are famous for burying their stuff, when they don't have the law on their side. Slightly off topic, I wondered what inflation has been like since 1850.  The Fed says the current dollar is worth 28 times less than the 1850 dollar.  This seems low.  The 1850 dollar contained 1/20th of an ounce of gold, which sells at $65   today.  So the current dollar is actually worth 65 times less. Another way of looking at this is by salaries.  Most jobs have changed too much, but a grunt in the US Army is essentially the same. A private in 1850 made $158/year and in 2017 it's $19200/year, so a dollar is worth 121 times less today.    I have a hard time believing the Fed's figure when it seems like inflation is two to four times more. This was called Financial repression by Edward S. Shaw and Ronald I. McKinnon from Stanford (https://en.wikipedia.org/wiki/Financial_repression). Financial repression is the situation, when government is stealing from people, who rely heavily on saving, rather then on spending. Meaning that your saving rates will be a lot worse then inflation rate. Financial markets are artificially hot and interest rates artificially low (average historical interest rate is 10%). This could be a possible predictor state to hyper-inflation. "The big reason why this is hard to wrap your head around via analogy is because we think of ""money"" as printed paper cash. Now, that stuff *is* money, but it's not the only kind of money. In fact, it's not even close to the majority of money in the system.   When you charge dinner to a credit-card, your credit-card company sends an electronic ""promise"" to the restaurant, which based on your ""promise"" to re-pay the credit-card company, which is in turn based on your employer's promise to pay you for wages that you earned this past week, and so on... Similarly, the restaurant pays their landlord and employees and suppliers with checks and electronic-funds funds transfers, which are promises that the restaurant's bank will pay the check-holder's bank and so on.   It's not like there are gnomes running around with bags of cash or gold behind the scenes: these ""promises"" are money that is actually being spent and re-spent, usually *without ever getting reconciled as actual cash withdrawals of printed currency.* It's promises all the way down: You can pay off a mortgage without ever once handing anyone a single printed dollar-- it's just checks and bank-transfers from your employers/investments, passed along to the creditor. And that's *real money*, even if it never gets printed.   This can be pretty cleanly described mathematically (that's the kind of stuff where econ is pretty genuinely a ""science"", as opposed to the messier market-prediction and public-policy stuff). But it is very hard to make sense of via ""analogy"".   That's why I used a fictional world where money doesn't exist. If you set aside your preconceptions, don't try to second-guess or think ahead to the conclusions, but just read through the story as it is written, you will see that there is *no meaningful difference at all* between the apple-certificates, the merchant-cartel-printed loddars, and a personal IOU handwritten from one person to another, except for the credibility of the issuer.   Seriously, don't argue, don't ""yeah, but"", don't try to tie this to your paycheck, don't try to think about how this relates to the mortgage collapse, just read through the story as it is written. Because I can't ""prove"" to you (except through pretty hairy mathematical models) that money is debt by explaining it in reverse-- it runs counter to all of your experiences as a participant in the model, in countless ways. *But it is*.   Until you internalize that fact, and wrap your head around the fact that money is just IOUs, it will never make sense that money can be just ""gone"". If you sell me a watermelon, and I get hit by a bus carrying it home, the watermelon is gone. ""Yeah, but I still have the money"", you say.   But suppose that instead of cash, I had written a promise to come paint your house this weekend. ""Sure,"" you say, ""but that's not the same as money."" *But it is*, in very literal ways.   I'm never going to convince you that my promise to paint your house is the same fundamental stuff as US Dollars, differentiated only by the credibility of the issuer... you're just not going to believe me, and we'll get nowhere arguing analogies.   So instead, just read through the story above, without prejudice, and follow the history of that little make-pretend world. Because you'll never make sense of ""where the money went"" until you can internalize the concept of money as promises that can be broken."