Foundations · Module 5 of 6
Now versus later
Why money today is worth more than money next year, and how to weigh a choice before you make it.
Key terms in Now versus later
- Constant dollars
Constant dollars, also called real dollars, are dollar amounts adjusted to remove the effect of price changes over time. Restating old and new figures in the prices of one base year makes them directly comparable. Without that step, a larger nominal sum from decades ago can hide the fact that it bought less.
- Base period
A base period is the point in time used as the reference for comparing other periods. Index numbers are set to a fixed value in that period, and later readings show how far they have moved from it. Choosing a different base period changes the index level but not the percent change between two dates.
- Time value of money
The time value of money is the economic principle that a sum of money is worth more in the present than the same sum received later. The difference arises because money available now can be put to use, and because waiting has a price. Interest rates are the usual way of measuring that price, so higher rates make delayed payments less valuable in comparison.
Source: Federal Reserve Bank of St. Louis, Baseball and the $700 Million Bet on the Time Value of Money
Every term on Lever is in the money glossary.
About this module
Now versus later is part of Foundations, one of 15 subjects in Lever. It’s a short run of 5 lessons, about 13 minutes in all, so you can finish it in one sitting.
Every lesson takes one idea at a time. You read it with the math worked out step by step, answer a question that puts it to use, then see why the right answer is right and why the others aren’t.
It’s for anyone who was never taught this, and you don’t need to know anything first. Every lesson is free. Lever works out what you already know, so you can start here or let your path bring you to it.
More in Foundations
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1
What money actually is
Why money exists at all, the jobs it does for you, and why every price is written in the same currency.
6 lessons -
2
The numbers underneath
Percentages, interest that grows on itself, and the cost of choosing one thing over another. The three ideas everything else leans on.
8 lessons -
3
What keeps money working
Why paper money still buys groceries, and the trust that keeps the whole system running.
5 lessons -
4
A number and a date
Turn “I should save more” into a clear goal with a number and a date, and decide which goal comes first.
5 lessons -
6
The shape of growth
How long money takes to double, and why small amounts added every month grow faster than you’d think.
5 lessons
Try this module
It’s part of Foundations. Lever will bring it to you when you’re ready, or you can go straight there.