$1000 in Dec 2006 - what is it worth now?

[wylie]

When our first born turned 18 we decided to give him $1000 plus a small gift to keep as a memento. We repeated that for his 21st.

If we follow on this path, the next boy will get his $1000 next week and the youngest has to wait another four years

I am trying to work out a rough idea of what $1000 in December 2006 would be worth in January 2010 (almost exactly three years later).

The middle son could well bring up the fact that his $1000 will not buy as much three years down the track as the oldest boy's $1000 did so we want to increase it for inflation.

I am guessing $1100, possibly $1200.

Does anybody have a better way to work it out rather than guesswork?

Thanks

 

[JamesGG]

The RBA have an inflation calculator, but it only seems to be set up to March 2009. That gives an increase from December 2006 of $68.81, for whatever that's worth.

 

[Rolf Latham]

so much for the RBA idea of "run away inflation" that needed arresting .........sorry to hijack the thread.

The GFC was a sweet thing for the RBA I reckon, a real life saver.

ta
rolf

 

[Apocalypse]

Most of the things 18-21 yo's may buy would be cheaper now. What sort of plasma/LCD would you have gotten for a grand three years ago? Alll electronics type stuff would be heaps cheaper now. Booze - has that really changed that much? Fuel - average price in Dec 2006 according to ACCC doc google found was 115.7cpl...

Buy a car - vehicle prices would be better now I reckon. Maybe if they want to be responsible and get a mortgage/buy a house - what were interest rates in Dec 2006?

Offer 'em $950 I reckon!

 

[wylie]

Most of the things 18-21 yo's may buy would be cheaper now.

LOL. You don't know my boys . I could never get away with that argument.

Offer 'em $950 I reckon!

I might give that one a try.... tell the second son that with most things being cheaper (and give him the big TV as an example) we thought we would make his gift $950.

I reckon he will be okay with that....... NOT .

Looks like $1100 will be about right.

 

[lizzie]

our big girls were 5 years apart from eldest to youngest. we just gave them all $1000 for their 18th without inflation adjustment. i worked on the theory that most things they would spend it on (electronics etc) would be around the same or less, ditto for clothes, and if they were just going to save it in their ing account then there wouldn't be much difference their either.

now that the 2nd is approaching her 21st - wish the price of gold would come down! we buy a piece of jewelry that is charged on weight/value on that given day.

 

[buzzlightyear]

$1092.73.

Assumed 3 years and used for the entire period an annualised inflation rate of 3.0% (as per RBA inflation calculator results for Dec 06 to Mar09).

 

[wylie]

$1092.73.

Assumed 3 years and used for the entire period an annualised inflation rate of 3.0% (as per RBA inflation calculator results for Dec 06 to Mar09).

Thanks........

 

[Indifference]

To give absolute clarity, I offer the following to explain buzz's answer:

PV = FV / (1 + i)^n

where
PV=present value
FV=future value
i=compound amount (ie. inflation where 0.03 is 3%)
n=number of periods (ie. years in this case)

So, to work out a FV from a known PV (ie. $1000) simply:

FV = PV * (1 + i)^n <-------------- note: the formula is now rearranged
FV = 1000 * (1+0.03)^3
FV = 1092.727

Knowing how to 'fish' is often better than "eating fish"

Understanding Net Present Value and the Time Value of Money, is absolutely fundamental to our interests within this forum, IMO

 

[Ausprop]

could be worth negative depending what you invested in!

 

[Rob Williams]

Knowing how to 'fish' is often better than "eating fish"

Understanding Net Present Value and the Time Value of Money, is absolutely fundamental to our interests within this forum, IMO

You are absolutely right.
However, most people just want to grab a box of frozen I&J fillets from the supermarket.
Personally, I prefer my trusty old Hewlett Packard 12C, which I've had since they were launched in 1981.

 

[MichaelW]

now that the 2nd is approaching her 21st - wish the price of gold would come down! we buy a piece of jewelry that is charged on weight/value on that given day.

Hi Lizzie,

I buy my son a 1oz 999 proof gold coin from the Perth Mint for every birthday. He's four now. Of course he gets the usual doodad presents too. The coins work out to be about $1300ea at the moment but the first one was under $1000. How silly am I!

Cheers,
Michael

 

[Pa1nter]

I have three beautiful girls and we started a normal bendigo bank account each for them from birth.
We pay $20 per month and $200 on birthdays.

Can someone tell me what they will have by the time they are 18

Also at what stage should I take it out and invest it?

There ages now are 6,4 and 7 months.

Thanks,glad I stumbled across this thread

 

[Indifference]

I have three beautiful girls and we started a normal bendigo bank account each for them from birth.
We pay $20 per month and $200 on birthdays.

Can someone tell me what they will have by the time they are 18

Also at what stage should I take it out and invest it?

There ages now are 6,4 and 7 months.

Thanks,glad I stumbled across this thread

Sure, why not, I will feed you fish and tell you how I caught it as well

Let
X = 20 (dollars per week)
Y = 200 (dollars per birthday)
M = 12 (months in the year)
N = 18 (periods of payment --> years)
Q = ??? (your question)

Now, X is paid monthly & Y is paid annually, so,

Q = (X*M*N) + (Y*N)

Therefore

Q = 7920 which represents the contributions over the 18 year period. Now, all you need to do is account for TVM (time value of money) and the compounding affect of a chosen interest rate as it should be accruing at least a small amount even in a standard account.

If you would like to simplify it, Let TVM = % interest, therefore nulling the argument.

Hence, Q = $7920 ....... simple.........

 

[BayView]

$1092.73.

Assumed 3 years and used for the entire period an annualised inflation rate of 3.0% (as per RBA inflation calculator results for Dec 06 to Mar09).

Imagine if that same $1000 was in the Bank for that time.

 

[MichaelW]

I have three beautiful girls and we started a normal bendigo bank account each for them from birth.
We pay $20 per month and $200 on birthdays.

Can someone tell me what they will have by the time they are 18

That's simple!

Nothing, nada, zip!

You put it in Bendigo bank which is about to go bankrupt due to the Great Southern fiasco so all deposits will be lost.



Only kidding. OK, because I was so nasty, I'll give you the proper formulas and the answer. i.e. I'll give you the fish and teach you how to fish too.

What you've got is two basic annuities. An annuity is a stream of payments over a fixed period of time accruing an interest rate. If it wasn't a fixed period of time it would be a perpetuity, but this is just a simple annuity. Here's the wikipedia link to Annuity with the proof included if you're interested.

The first annuity is $20 per month for 216 months. (18 years x 12 months). The interest accrued I have assumed is 5% pa so would be 0.4074% compounding monthly to equal 5% pa.

The formula for an annuity is:

S=R(((1+i)^n)-1)/i

where:

S = The future value of the annuity (what you want to find out)
R = The periodic payment in the annuity ($20 in annuity one)
i = The interest accrued each period (.4074% per month in annuity one)
n = The number of periods (216 months in annuity one)

So, for the first annuity it is:

S = 20(((1+.4074%)^216)-1)/.4074%
S = $6,905.30

Your second annuity is the $200 for 18 periods accruing 5% per period.

S = 200(((1+5%)^18)-1)/5%
S = $5,626.48

You add the two together and get your answer:

$12,531.51 (Assuming 5% pa compound interest. Substitute for actual interest achieved for a precise answer)

Your welcome,
Michael