The amount by which consumers value immediate consumption in preference to deferred or postponed consumption. The rate of time preference of that consumer is the amount of money necessary so as just to persuade him to save the pound. If he thinks he will be doing very well next year and has no need to save, or out of fear of nuclear war believes the world will no longer exist next year, he will require a large amount of compensation to persuade him not to spend the pound. If on the other hand he believes he is perfectly well off at the moment and conditions are unlikely to change much, he may think a rather small amount of compensation makes saving worth while.
Several factors affect the time preference of consumers.
The first is the level of consumption they enjoy in the present. Other things being equal, the more consumption there is now, the lower the compensation needed for saving . As saving implies a fall in current consumption, the more that is saved, the higher the required level of compensation. As a corollary of this, the second factor is the level of consumption expected to be enjoyed in the future. If great wealth is expected tomorrow, a lot of reward will be needed to induce saving today.