What principle states that a dollar today is worth more than a dollar in the future?

The principle that a dollar today is worth more than a dollar in the future is known as the time value of money. This concept is foundational in finance and economics, emphasizing that due to inflation, investment opportunities, and earning potential, the value of money can change over time. A dollar today can be invested to generate interest or returns, making it more valuable than a dollar received in the future, which may not have the same purchasing power.

Understanding this principle is crucial for making informed financial decisions, such as evaluating investment opportunities and planning for savings. It highlights the importance of considering the timing of cash flows and the potential growth of money over time through interest or investment returns.

The other options relate to financial concepts but do not capture the essence of the time value of money. The Rule of 72 provides a shortcut for estimating how long an investment will take to double at a given annual rate of return, scarcity refers to the limited availability of resources, and simple interest specifically refers to a method of calculating the interest charge on a loan or the interest earned on an investment without compounding. Each of these concepts plays a role in financial literacy, but none encapsulates the core idea that the value of money is time-dependent like the time value of money does