Hello everyone! Today, I'd like to share with you a question we've been asking for decades: "Does money in the bank actually lose value?" 💸 This question touches on both financial management mindset and a crucial principle in economics: the time value of money ! Without this understanding, the harder you save, the poorer you become, and even becoming rich becomes elusive!

🔎 What is time value? Why is a dollar now worth more than in the future?

The time value of money (TVM) is a core concept in finance and investing, meaning "a dollar today is always worth a dollar tomorrow." Why? Because all money, as long as it's not locked away, has the potential to earn a return. Cash always has greater spending or investment potential than money of the same value in the future. Simply put, present value (PV) exceeds future value (FUTURE VALUE) , unless you can't bear to spend it all immediately.

For example:

• If you put 100 dollars in the bank today and don't use it for a year, you can earn 1 dollar in interest (if you put it in a 1% fixed deposit).

• Similarly, after one year, if the money is $100 but there is no interest, you have earned $1 less!

• In other words, "I'd rather keep the money I have at IKEA because I can invest and use it."

📉 Can bank savings maintain their value? The reality is they are slowly shrinking!

Everyone says "keeping your money in the bank is the safest place." But I think that's just superficial safety; you might actually end up poorer! The biggest enemy is inflation.

Current data of Hong Kong:

• Over the past 10 years, Hong Kong's average inflation rate has been 2.12%, meaning prices have risen by about 2% each year.

• Most current bank interest rates are between 0.01% and 0.25%; fixed deposits can reach 2% to 4%, but these rates are unlikely to remain above inflation.

• The result is: bank savings returns cannot keep up with the rate of inflation, and actual purchasing power continues to decline !

Simple case:

Assume that $100,000 is deposited in a current account in 2025, earning only 0.1% annual interest, and Hong Kong inflation remains at 2.12%. Ten years later:

• Account balance is approximately $101,005 (principal + interest)

• But during the same period, prices rose to 122% of their original value, and the actual value of the things you can buy is only $83,000⚠️

• You nominally have more money, but in reality you've "spent $17,000 less on things"!

Even if you take out a fixed term loan with a higher annual interest rate, it may not necessarily beat the market.

📉 The apparent amount of money hasn't decreased, but purchasing power has actually shrunk significantly

Some people say, "Although bank interest rates aren't high, they're better than nothing!" I'd like to point out that they're using safety as an excuse, but they're actually slowly shrinking their money! Because:

• Banks earn interest rate differentials: deposit interest rates are low, and loans are high, so banks can make money.

• If money sits idle, its purchasing power will automatically decline.

• Relying solely on banks will not accumulate wealth in the long run

The real loss is the "invisible" actual purchasing power!

Inflation brings real-life examples:

In the 1990s, $10 could buy two bowls of cart noodles; in 2025, it might just be a cup of bubble tea. Back in my mom's day, gold bars cost 3,000 yuan a tael; now they're 15,000!

You thought your money was safe, but the reality is it's been eroded by inflation!

⏳ What is the relationship between the time value of money and financial management?

The most important thing in financial management is to understand the value of time and take the initiative to fight inflation .

• Compound Interest/Future Value : As long as you invest (e.g., at a 4%-6% annual return), compound interest can explode over time. A small amount of money can become a large sum over ten years.

• Simply depositing money in the bank (Passive) : Money shrinks over time

• Active Investment : Increase the value of your money, recover it, and even outperform inflation

Diagram of the actual impact of inflation on cash

A diagram showing the erosion of cash purchasing power by inflation, showing the real value of HK$100 over 10 years.