Ask most people why $100 today is worth more than $100 a year from now, and they'll say inflation — prices rise, so the same $100 buys less later. That's true, but it's not the whole reason, and finance treats it as a separate factor entirely. Even in a hypothetical world with zero inflation, where prices never change at all, $100 today would still be worth more than $100 in a year, because of something inflation has nothing to do with: opportunity.
Money today can start earning immediately
The time value of money is the principle that a sum available now is worth more than the same sum available later, because money in hand today can be invested, put to productive use, or simply lent out at interest starting immediately — while money you're promised in the future can't do any of that until it actually arrives. $100 today, invested at even a modest 5% annual return, becomes $105 in a year. $100 promised to you in a year is just $100 when it arrives, with none of that year's earning potential recovered. The gap between those two outcomes isn't caused by prices rising; it's caused entirely by the earning opportunity that only the money in hand today ever had access to.
Discounting: working the gap backwards
Finance formalises this with discounting — converting a future sum of money into its equivalent value today, given some assumed rate of return. If a fair investment return is 5% a year, then $105 promised a year from now is worth exactly $100 today, because $100 invested today at 5% grows into that same $105. This "discount rate" is doing real conceptual work distinct from inflation, which is why financial analysis routinely uses a "real" discount rate that strips inflation out entirely, specifically so the pure time-value effect — the value of having money available to use sooner rather than later — can be measured on its own, separate from any change in prices.
What we're still unsure about
The mathematics of discounting is straightforward and uncontested; what's genuinely harder, and consequential, is choosing the right discount rate for a given decision, particularly over long time horizons. A small change in the assumed rate compounds into an enormous difference in a sum's present value decades out, which is exactly why debates over long-term policy questions — how much to spend today preventing a cost that would otherwise fall on future generations, for instance — often turn out to hinge less on the underlying facts than on which discount rate different analysts think is appropriate to apply, a genuinely contested judgment call rather than something the mathematics itself settles.
This sits inside Time Value of Money & Discounting, one of eight topics in Finance, one of five domains in Economics, one of seventeen subjects the app can quiz you on.