Your Net WorthGlossary
Purchasing power
Purchasing power is what a unit of currency can actually buy, after accounting for inflation.
A pound or dollar is only useful for what it purchases. If prices double, the same nominal amount buys half as much. That is a loss of purchasing power.
When people talk about money in real terms, they mean purchasing power. £100 today is not the same as £100 in twenty years unless prices stay flat, which rarely happens.
Investors care about purchasing power because the goal is not a large number on a screen but the lifestyle that number can support.