Asking Parents for Money, he Time Value of Money and Compounding Interest

The time value of money: the idea that an amount of money received earlier is worth more than that same amount of money received later. In other words, a dollar received today is worth more than a dollar received tomorrow. Money received earlier is worth more because the sooner you have money, the sooner you can invest that money, and the longer your investment has to grow in value. The important part of what I just said is the sooner you can invest that money.

Compound interest (or compounding interest) is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods. Thought to have originated in 17th-century Italy, compound interest can be thought of as "interest on interest," and will make a sum grow at a faster rate than simple interest, which is calculated only on the principal amount.