Financial Literacy: Inflation and Purchasing Power
Understanding how prices change and money buys less over time
Financial Literacy: Inflation and Purchasing Power
Understanding how prices change and money buys less over time
Financial Literacy - Grade 6-8
- 1
In your own words, explain what inflation means. Include one example of a price that might rise because of inflation.
Think about what happens when many everyday items become more expensive.
Inflation means that the general prices of goods and services rise over time. For example, a sandwich that used to cost $5 might cost $6 later, so the same amount of money buys less. - 2
A movie ticket cost $8 last year. This year it costs $10. How much did the price increase in dollars?
The price increased by $2 because $10 - $8 = $2. - 3
A backpack cost $40 in August. By December, the price rose to $44. What was the percent increase in price?
Use percent increase = amount of increase divided by the original price.
The percent increase was 10%. The increase was $4, and $4 divided by $40 equals 0.10, which is 10%. - 4
Look at the price list: 2020: milk costs $3 per gallon, 2021: milk costs $3.30 per gallon, 2022: milk costs $3.60 per gallon. Describe the pattern in the price of milk.
The price of milk increased each year. It rose by $0.30 from 2020 to 2021 and by another $0.30 from 2021 to 2022. - 5
Maya has $20 to spend on school supplies. Last year, notebooks cost $2 each, so she could buy 10 notebooks. This year, notebooks cost $2.50 each. How many notebooks can she buy this year with $20?
Maya can buy 8 notebooks this year because $20 divided by $2.50 equals 8. - 6
Explain how the notebook problem shows a decrease in purchasing power.
Purchasing power is about how much money can buy.
The problem shows a decrease in purchasing power because the same $20 buys only 8 notebooks this year instead of 10 notebooks last year. - 7
A lunch meal costs $6. The price increases by 5%. What is the new price of the lunch meal?
The new price is $6.30. Five percent of $6 is $0.30, and $6 + $0.30 = $6.30. - 8
A video game costs $50. During a year of inflation, the price rises by 8%. How much money is added to the price?
Change 8% to the decimal 0.08, then multiply by 50.
The amount added to the price is $4. Eight percent of $50 is 0.08 x 50 = $4. - 9
Use the chart: A pair of shoes cost $60 in 2021, $66 in 2022, and $72 in 2023. In which year was the price highest?
The price was highest in 2023 because $72 is greater than $60 and $66. - 10
A store owner says, "Our prices went up because our delivery costs and materials cost more." Is this an example of inflation affecting a business, a consumer, or both? Explain.
Think about who pays the higher costs first and who may pay later.
This is an example of inflation affecting both. The business pays more for delivery and materials, and customers may pay higher prices as a result. - 11
Jordan saved $100. If inflation is 4% for the year, about how much buying power would Jordan lose if the money does not earn interest?
Jordan would lose about $4 of buying power because 4% of $100 is $4. - 12
A cereal box was $4 last year and is $5 this year. A snack bag was $2 last year and is $2.20 this year. Which item had the larger percent increase?
Compare percent increases, not just dollar increases.
The cereal box had the larger percent increase. The cereal increased by $1, and $1 divided by $4 is 25%. The snack bag increased by $0.20, and $0.20 divided by $2 is 10%. - 13
The table shows average monthly bus pass prices: Year 1: $30, Year 2: $33, Year 3: $36. If the pattern continues, what would the price be in Year 4?
The price would be $39 in Year 4 because the bus pass price increases by $3 each year. - 14
A family budget includes $300 for groceries each month. Grocery prices rise by 10%. How much would the family need to budget to buy the same amount of groceries?
Find 10% of 300, then add it to the original budget.
The family would need to budget $330. Ten percent of $300 is $30, and $300 + $30 = $330. - 15
Write two smart choices a person could make when prices are rising because of inflation.
Think about ways to spend carefully or plan ahead when items cost more.
A person could compare prices at different stores and look for sales or coupons. A person could also adjust a budget by spending less on nonessential items.