Why it’s important to know how inflation affects your finances

New research from Aviva reveals the worrying knowledge gaps the nation has around inflation and how this can have a wider impact on their investments and savings.

In a survey of 2,000 UK adults, nearly two thirds (63%)^[2] say they have good financial knowledge, and more than half (56%)^[3] say they have a good understanding of inflation.

However, nearly three quarters (73%)^[3] don’t, or only vaguely, understand why it's important to understand inflation and almost a half of those surveyed (45%)^[1] say they don’t understand how the monthly rate of inflation is calculated - this number is much higher for women (59%) than men (30%). In addition, one in five (22%) think that the rate of inflation can only increase.

The consumer price index (CPI) is one of the main ways in which inflation is measured, by tracking the change in costs of common goods and services over time. Yet, 50%^[1] of those surveyed say they don’t know how this is calculated, rising to 62% for those aged 60-64, that’s higher than any other age group.

The effect of inflation on savings and investments

Overall, around a quarter of those surveyed (24%)^[1] say they don’t understand why it’s important to understand inflation when it comes to saving and investing, and this is twice as likely for women (32%) than men (16%).

One in eight UK adults (12%) think inflation doesn’t influence their savings, and a further one in six (17%) are unsure if it impacts their savings. This is highest amongst those aged 45-49 (27%).

Understanding how inflation affects your savings is key, as rising prices can erode the purchasing power of your money over time, potentially leaving you with less than expected when you need it most. For example, with the current rate of inflation (CPI) at 3.8%, something that costs £1,000 today could cost around £1,452 in ten years if this rate of inflation was to be sustained. This means your savings would need to grow by at least that amount just to maintain the same purchasing power.

Although inflation affects services, the broader economy, and purchasing power, more than one in five people (22%) believe it only impacts the prices of specific goods, like groceries. Interestingly, more than a quarter of those who rate their knowledge of inflation as good (27%) were wrong in thinking it is just the cost of certain goods that are affected.

Focusing on inflation, nearly a third of those surveyed (31%) say their knowledge of the topic has improved in the past two years, attributing this to keeping up with the news, wanting to find out why prices are increasing and seeing a direct impact from the increased rate to themselves or to their investments. Again, there is a stark difference between men and women here, with men being nearly twice as likely as women to spend time researching inflation (36% and 19% respectively)^[4].

By contrast, a third (32%)^[5] of those surveyed say they feel more confused about inflation now than two years ago, with this rising to 50% for those aged 18-24. Of those who feel puzzled around the topic, a quarter (25%) say this is because the media talk about inflation like everyone already knows what it is, while 23% feel they hear contradictory statements and have seen a rise in prices and they’re unsure why.

Alistair McQueen, Head of Savings and Retirement at Aviva, says: “Inflation can be a tricky topic to fully understand. However, it has a large impact on our own everyday finances, such as wages and the price of things we buy, so it’s a big factor to consider in terms of your own investments and savings.

“This is why it’s concerning to see the knowledge gaps the nation has around inflation and the influence it can have.

“There are many tools and calculators that can help provide an overview of how your savings or investments could be affected by inflation. While they shouldn’t be relied on for financial decisions, on their own, they are helpful to use to get an idea of the potential long-term impact on your investments and savings.”

Aviva has created an inflation calculator to help understand the potential impact inflation can have on the nation’s investments and savings, as well as guides to help understanding around the topic.

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Methodology:

_{This research was conducted by Censuswide, among a sample of 2,000 UK Nat Rep Respondents (18+). The data was collected between 25.07.2025 - 28.07.2025. Censuswide abides by and employs members of the Market Research Society and follows the MRS code of conduct and ESOMAR principles. Censuswide is also a member of the British Polling Council.}

References:

^1. _{‘Don’t really understand’ and ‘No understanding at all’ answers combined [↑]}

^2. _{All ‘good’ answers combined [↑]}

^3. _{“Somewhat understand”, “Don’t really understand” and “No understanding at all” [↑]}

^4. _{Those whose knowledge of inflation has improved in the past two years [↑]}

^5. _{‘Strongly agree’ and ‘Somewhat agree’ answers combined [↑]}

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