Time Preference

Time preference describes how much a person values receiving something now versus later. If someone has a high time preference, they strongly prefer getting assets or goods sooner, even if that means paying extra or taking on debt. For instance, taking out a mortgage to buy a home lets people enjoy it immediately rather than waiting years to save enough money.

This concept also shapes borrowing and saving behavior. People with higher time preference are more likely to borrow, while those with a lower time preference may save and delay gratification. Time preference plays a big role in determining interest rates—lenders charge borrowers more when immediate access to money is in demand. In investing, future cash flows are usually considered less valuable than immediate ones, so money promised in the distant future is “discounted” compared to money received soon. However, owning something right away isn’t always better, especially if it’s hard or expensive to maintain.