Question

what is lifecycle hypothesis

Answer 1

In economics, the life-cycle hypothesis (LCH) is a model that strives to explain the consumption patterns of individuals.

The life-cycle hypothesis suggests that individuals plan their consumption and savings behavior over their life-cycle. They intend to even out their consumption in the best possible manner over their entire lifetimes, doing so by accumulating when they earn and dis-saving when they are retired. The key assumption is that all individuals choose to maintain stable lifestyles. This implies that they usually don't save up a lot in one period to spend furiously in the next period, but keep their consumption levels approximately the same in every period.

Answer 2

The Life-Cycle Hypothesis (LCH) is an economic theory that pertains to the spending and saving habits of people over the course of a lifetime. The concept was developed by Franco Modigliani and his student Richard Brumberg. LCH presumes that individuals plan their spending over their lifetimes, taking into account their future income. Accordingly, they take on debt when they are young, assuming future income will enable them to pay the debt off. They then save during middle age in order to maintain their level of consumption when they retire. This results in a "hump-shaped" pattern in which wealth accumulation is low during youth and old age, and high during middle age.