The Economic Perspective: “Accounting for the Future”

This is Mary Walden with economist MW, welcoming you to the economic perspective.  Today’s program looks at accounting for the future.  Mike, many decisions we make involve money or resources either received or spent in the future.  Investing, taking out a loan, or going to college are good examples.  When faced with these futurist decisions, are there special factors we need to consider?

  1. Biggest issue is not to consider future dollars to have same value as current dollars
  2. Reason – inflation – even a modest annual inflation rate can make a future dollar worth a lot less than a current dollar
  3. Economists handle this through something called discounting
  4. Without going into detail, discounting turns future dollars into the same purchasing power as current dollars
  5. This then allows people to directly compare the dollars
  6. Example – go to college – 4-year cost is $60,000
  7. If discounted value of higher future earnings due to having a college degree as compared to a high school degree is $1 million, then clearly worth it
  8. I’m MW

Mary:  And I’m Mary Walden for the Economic Perspective, an NC State Extension program from the Department of Agricultural and Resource Economics