I just took an online survey to gauge interest in financial literacy courses at my school. My answer was that they would be worth the same. Apparently, Steve would have more.
How is $100,000 worth more if received in the past when they would both have the same buying power?
Posted Oct 18, 2018, 12:29 AM UTC
interest
That was simple. I just assumed it was apples to apples comparison.
Thanks
Dude inherited today, and just puts that straight into a savings account, or buys a six month bond. His $100, 000 earns around $1,500, before the second hombre inherits their $100,000.
The first guy is easily ahead, depending, of course, on what he does with it. He would even be ahead if he uses the whole amount to pay off interest bearing debt.
If Steve invests wisely and gets a return on his investment that is higher than the rate of inflation, then his inheritance will be worth more in six months.
They do not have the same buying power. Inflation reduces the buyer power of money by roughly 2-3% every year. This varies by year and by country, but let's just use 3% for now.
$100,000 now is worth $100,000
$100,000 in 6 months is only worth $98,500 in today's money/buying power.
So that money now is worth more.
Not interest. Inflation. You pointed out the reason in topic. Buying power. Things 6 months from now will be more expensive than they are now.
Okay I see your thinking. Comparing having the money today, with having it six months from now, I would be able to buy more things at the earlier time.
This makes a lot of sense. Crafty wording imo. Thanks
I agree but dang inflation grows that much in such a short time?!?
Doesn’t have to grow much to be worth more.