Why is money today worth more than money tomorrow?

Final course of Foundations — and it opens with the single idea underneath ALL of finance. Every valuation, every bond price, every pension plan is built on this one asymmetry.

The offer

Choose: €1,000 today, or €1,000 one year from now. Everyone picks today — but WHY is the instructive part:

You could put it to work. Today's €1,000 in a 5% deposit becomes €1,050 in a year. Tomorrow's €1,000 is just... €1,000. The gap is opportunity, and it has a price — the interest rate you met in the macro course.
Inflation shrinks the wait. Next year's €1,000 buys less (real-vs-nominal glasses on).
Tomorrow is uncertain. Promises can break; today's cash can't.

Three reasons — and you may recognize them as the macro course's "three rents" seen from the other side of the counter. Time value of money (TVM) is the formal name: money has a time dimension, and comparing amounts across time without adjusting is comparing apples to future oranges.

It is priced all around you

You have already been paying for this asymmetry, often without seeing the rate. A supplier's invoice reading "2% off if paid within 10 days, otherwise due in 30" is offering 2% for twenty days of earlier money — about 37% a year, which is why finance departments pay early. A lottery jackpot advertised as a headline sum is the total of thirty annual instalments; the cash option, the same prize paid today, is roughly half, and that halving is the wait, priced. Every "buy now, pay later" and every "pay upfront and save" is the same exchange rate, quoted in a different shop.

The two directions

All of TVM is two moves on one street:

Forward (compounding): what does today's €1,000 become in N years at rate r? — the growth question, next lesson's subject.
Backward (discounting): what is a promise of €1,000 in N years worth TODAY? — the valuation question, lesson 3's subject.

Same street, opposite directions, one exchange rate between present and future: the interest rate. This is why the macro course's gravity metaphor works — when rates change, the exchange rate between today and tomorrow changes, and every price built on future money moves.

Try it now

Say the three reasons today-money beats tomorrow-money — without peeking.
A friend says "€10,000 in ten years is the same as €10,000 now, it's the same number." Give the two-sentence correction.
Connect: which macro-course idea is the "exchange rate" in this lesson?