Final answer:
Inflation can impact the real value of savings, making it a financial challenge. Cash savings may lose purchasing power, and investments may not keep up with inflation. This can make long-term planning and saving for retirement difficult.
Step-by-step explanation:
Inflation can impact the real value of savings, which serves as an example of a financial challenge. When inflation occurs, the purchasing power of cash decreases, which means that the money saved may not be enough to buy the same amount of goods and services in the future. This can be problematic for individuals who have significant cash savings or financial assets that do not keep up with inflation.
For instance, if a person has money in a bank account that pays 4% interest, but inflation rises to 5%, the real rate of return for the money invested in that bank account is negative 1%. This means that the purchasing power of the savings is actually decreasing over time.
Overall, inflation affecting the real value of savings poses a financial challenge as it erodes the purchasing power and can make long-term planning and saving for retirement difficult.