The Money Value of Time ⏳

The title of this essay is a play on words about a concept in economics known as the “time value of money”. This concept describes that a sum of money has more value if received in the present compared to receiving the same sum of money in the future. I believe we can use the same logic to explain why this is also true for the value of time. To begin, I’ll explain why a sum of money is worth more in the present compared to the future. There are 3 main reasons that support this notion: inflation, risk, and the preference for liquidity.

Inflation

If you have one gold coin and that one gold coin can buy 3 cows. The gold coin is worth 3 cows. The purchasing powerof that gold coin is 3 cows. Now let’s say that some time later, the purchasing power of your coin has decreased to 2 cows. This process is known as inflation. It can described in 2 ways: when the cost of goods and services increases over a period of time, or when a currency suffers a decrease in purchasing power. One of these occurring usually has a consequence of the other. There can be many causes for inflation, but often times it’s a controlled mechanism put in place by the government or central bank to stimulate economic activity and increase overall productivity. In a more simplified way, inflation happens when demand is greater than supply. When demand is suddenly greater, it creates more opportunities and jobs to increase the supply. This will often result in higher wages, which then results in more spending and even greater demand, which then results in more job and opportunity creation. Inflation, in healthy amounts, is a sign of economic growth. This means that we can expect prices to continue to rise over the long term. As a result, your gold coins have more value now and a decreasing amount of value over time.

Risk

The future brings a natural risk of uncertainty. Consider an agreement where you are expected to receive a sum of money sometime in the future. The risk of receiving this money will be judged by some notion of “trust” placed in the sender of this money. Even in “low risk” scenarios where the money is to be sent by a highly trusted friend or government institution, the unpredictable events of the future could result in not obtaining the full sum of money that was initially promised. Since the risk of not receiving this amount increases with the duration of time that the money has not been received, we can conclude that the sum of money has a decreasing amount of value over time.

Preference for Liquidity

Liquidity refers to the ease at which an asset can be converted to cash. Money that is yet to be received can also be called credit. Credit is an illiquid asset. This is because conversion of credit to cash requires time, or a conversion that can potentially cause a loss in value. Since we can only make choices using liquid wealth, money that isn’t received yet has an opportunity cost associated to it. The opportunity cost in this case, is the growth that the money can experience after being invested. That opportunity cost gets larger as the duration of time being illiquid increases.

Time

The reasons that support the notion that money has a greater value in the present compared to the future - inflation, risk, and preference for liquidity - also apply to the concept of time. Time has greater value in the present compared to the future. Ultimately, money is just a way to represent value. We can represent the value of time by regarding it as a currency. If the dollar can represent a single unit of value w.r.t money, “hour” can be used to represent a single unit of value w.r.t. time.

Inflation is a sign for a healthy, growing economy. It is controlled and predictable. Inflation is caused by increased demand. This results in a decrease of the value of a dollar over time. Similarly, increased demands in adulthood can be controlled and predictable as well. It is a sign for a healthy growing career or family or social life. Similar to inflation, these increased demands will result in a decrease of the value of an hour over time. Increased demands can mean more responsibilities, more liabilities, and more expectations. An hour spent socializing will bring less value if you have a finite number of hours to spend in a day, and also need to fulfill responsibilities relating to your career or family. An hour, just as the ever-inflating dollar, has more value in the present because of the predictable increases in demand of your time.

Risk of future unpredictable events reduce the value of money over time, making money most valuable in the present. This is because the money is not guaranteed to be received in the future, even if promised. The same also applies to time. Unpredictable events of the future could make the amount of hours your expect to have in your lifetime cut short. The only time you have that is guaranteed is the present moment, therefore it has the greatest value.

Liquid wealth is money that can easily be converted to cash without substantial loss in value. Liquid time refers to the hours that are spared and can be used for leisure. Not all hours can be converted to liquid time without substantial loss in value. We all have access to a finite number of hours in any given time period. A large chunk of those hours are dedicated to basic needs for our survival, such as sleeping and eating. Another large chunk is dedicated to maintenance of our lifestyles such as working, exercising, and managing our responsibilities. Very few hours in our time can be converted to liquid time. The liquid time is the most valuable time compared to the hours dedicated to survival or maintenance. Liquid time is when we can invest in ourself for improvement. The idea is to earn interest on this time, resulting in either more liquid time or improvement of the hours in illiquid time. This could mean spending liquid time in a way to improve career and wealth to support an upgraded lifestyle. It could also mean spending liquid time in a way that achieves a level of fulfillment that translates to greater happiness in all aspects of your time. The more liquid time you have, the more value you can create with your time.

My cousin got accepted into her dream college last year. She opted to commute 2 hours each way for every day that she had classes. My cousin was scared of the idea of debt. Her rationale for spending 4 hours on buses and trains was that she could save money on rent by living at home. Even if her home was far from her destination. There were many alternatives to her choice, of course. One of the most obvious alternatives was to live on campus, in the subsidized student housing. Her choice made sense to much of my family. The best way to save money, in their perspective, was to simply not spend it. Had she opted to live on campus, she could have saved 20 hours of liquid time every week. This time could have been used to get a part time job, one that would help her gain work experience at her young age and also earn money to offset the cost of rent. It could also have been used to spend more time among her classmates and professors studying and understanding the material she pays tuition for. It could also have been used to build an independent social life and skills in an environment meant for experimenting and being a young adult for the first time. All the benefits of liquid time I described here are much more complicated to quantify compared to the fact that rent at home costs $0 and rent on campus costs much more.

This essay is a description of the value of time, using the commonly understood concepts of the value of money. Money is earned by trading your time. In a similar way, time can also be earned by trading your money. Both money and time are concepts of value, but time isn’t often seen as valuable of a resource as money. Using the abstraction of inflation, risk, and preference for liquidity, I hope this essay was able to convince you to make decisions that optimize value.

Thanks for reading.