The Time Value of Money

People generally earn money because they want to spend it. If they save it, rather than spend it in the period in which it was earned, it is usually because they want it to spend in the future. However, for most people present consumption is more desirable than future consumption if only because the future is so uncertain. "Live and be merry, for tomorrow we may die," is a rationale used over the ages to justify the urge to buy now rather than deferring gratification to the future. For this reason, most of us would rather have a dollar today than a dollar a year from today, and must be given something extra to get us to defer gratification.