NC State Economist Mike Walden – “Discounting the Future”

Mary:  This is Mary Walden with economist MW, welcoming you to the economic perspective.  Today’s program looks at discounting the future.  Mike, there’s an old adage that says “time is money”.  When we look at situations where people are comparing dollars they will receive or pay in the future to dollars now, does that adage seem to apply?

Mike:  Summary Answer

  1. Certainly does apply
  2. Dollar in future will be valued less than a dollar today
  3. Inflation, uncertainty, and idea that want now rather than later
  4. Means need more future dollars to equal one dollar now
  5. These discount rates vary by person
  6. But research shows an average discount rate today is about 2.6%
  7. Means would need $1.026 a year from now to equal $1 today
  8. Or, need $1.29 (with compounding) in 10 years to equal $1 today
  9. A reason why more on a loan than borrowed
  10. I’m MW

Mary:  And I’m Mary Walden for the North Carolina Cooperative Extension Service