Can You Explain the Time Value of Money Concept?

Marguerita-Cheng-20-Can you explain the time value of money concept

In this video, Marguerita Cheng explains the time value of money, highlighting that money today is more valuable than the same amount in the future, as it can earn interest over time, while also noting that inflation erodes purchasing power, illustrating how the concept can work for or against you.
Video Transcript

The time value of money is a very important and fundamental concept in personal finance. Understanding the time value of money can help consumers make better spending, saving, and investing decisions. Essentially, means that one thousand dollars today is worth more valuable than one thousand dollars Here is an example of the time value of money working for you. You could take that one thousand dollars today and invest it and earn five percent compound over the next ten years. That is an example of your money working for you and taking advantage of the time value of money. Essentially it's not about trying to time the market and determine the best time to invest but it's really about the time you're in the market.

An example of the time value of money working against you would be inflation. That one thousand dollars that you have today will not buy the same one thousand dollars worth of goods ten years from now.