What is the time value of money? CNBC explains

Personal Finance


In refuting a New York Times report, which found that he received at least $413 million in today’s dollars from his father’s empire, President Donald Trump went back to Economics 101.

In a tweet, Trump did not specifically deny the conduct the Times described as “dubious tax schemes,” including “instances of outright fraud.”

“The Failing New York Times did something I have never seen done before. They used the concept of ‘time value of money’ in doing a very old, boring and often told hit piece on me. Added up, this means that 97% of their stories on me are bad. Never recovered from bad election call!” Trump wrote.

The Times defended the article after Trump’s tweet. “This is a powerful piece of investigative journalism, the result of 18 months of inquiry and a review of over 100,000 pages of records. It is accurate and fair and we stand behind it,” a spokeswoman for the paper said.

In addition to gifts, the Times reported that Fred Trump loaned his son at least $60.7 million, or $140 million in today’s dollars. It also said Trump and his siblings dodged taxes to help boost the value of the money they got from their parents.

The basic rule in economics is that the value of money today will not be equal to the same amount of money in the future. Also known as the time value of money, this accounts for factors such as interest and inflation.

For example, a Hershey bar cost about 2 cents when it was first introduced more than 100 years ago. That same chocolate bar costs close to $2 today. A few decades in the future, it will be considerably more expensive.

When looking backward — as the Times report did — using the time value of money helps readers think in today’s dollars what an amount might have bought in the past (i.e., yesterday’s 2 cents is today’s $2).

Either way, it is important to keep in mind that dollar amounts on paper and real returns (adjusted for inflation) are different.

More from Personal Finance:
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