No, they don't. Some people have some money in saving accounts, but the VAST majority of people's savings are in houses and in retirement plans, which are not cash holdings. Only a very small amount of people have the majority of their savings only in cash for periods long enough that compound inflation kills the savings.
As to things like the Fed, and inflation:
Every single country in the world has chosen to use central banking due to the lessons learned over the past few hundred years, and especially during the Great Depression, that having a politically independent central bank target low inflation results in the most stable, predicable economy. It gives decent ability to balance shocks, lower unemployment, make business smooth and predictable, and avoid deflationary spirals, which are devastating. Compared the period right before the world started understanding how this can work, there is no question that volatility and destructive cycles are now vastly better.
I get the idea that you have not ever studied economics, especially monetary policy, but just like you probably have not studied quantum physics or brain surgery or ancient Egyptian hieroglyphics, just know that mankind has put tremendous effort into all of these and has learned some very useful things.
So - given that centuries of good thinkers following centuries and hundreds of countries of evidence have come to the conclusion that low inflation and central banking are wise, and not the product of conspiracy Illuminati nonsense, then you should adjust your beliefs that this is wise, in the same way you'd understand medicine, physics, math, etc., are all studied and the experts do indeed understand them vastly better than the general populace.
Thus, since there will be targeted inflation of around 2%, it is dumb to assume one should simply save all their money as cash. Invest it in broad index funds, or something similar.
>I am caught off-guard by the power of compound interest.
All the more reason to not hold cash, which has zero reason to grow, and has a very solid reason to shrink in buying power, and invest in productive assets with savings. The compound growth of productive assets then works for you, not against you.
>But while it is absurd to store you money in a coffee can in the shed for 30+ years, I'm not sure it should be.
It is absurd given the rest of the evidence around us.
