What is inflation and what does it do?

Inflation is the general increase in prices over time. This generally happens through the printing of money. As more is created, the value of each individual dollar goes down.

In Canada, the Bank of Canada aims to increase inflation by 1-3% every year. As a rule of thumb, you can expect the cost of goods and services to go up by the same amount.

This means that if the money you are saving for your future doesn’t grow by 2% every year, you’re not keeping up with the world around you.

For example, you could put away enough money to buy a new car today, but in ten years, it won’t be enough to buy that car. Your money will shrink before you have the chance to use it.
This is why it matters where you keep your long-term savings.