What is meant by life cycle theory of savings

The lifecycle theory of savings assumes that an individual's savings are linked to the life cycle of a person and have a certain pattern. In this theory, Modigliani and Blumberg explored the different factors that influence a person's saving habits during the different cycles of life. At the same time, they argue that at the end of an individual's life, they all use up exactly what they have saved throughout their lives.

Extended information:

The main contents of the theory include:

(1) The consumer's motivation to save is mainly to realize the maximization of the consumption utility in order to get the maximum satisfaction of the whole life, so the amount of consumer's savings is the amount of savings that he has considered the the whole process of life and the result of integrated planning.

(2) In addition to current and expected income, savings are also linked to wealth holdings and age, and current income, expected income and wealth holdings are all related to age and change with age.

(3) People's income can be divided into two parts: wage income and property income, total social savings is not only affected by the wage income factor, but also affected by the property income rate, the relationship between property and consumption and savings is stable in the long run. Therefore, total social savings is not simply the sum of residents' unconsumed income, but the result of the planned life cycle behavior of individual residents.

(4) Analyzed from the perspective of the individual life cycle, consumption and property are subject to expectations, age and other factors, so property is not in positive proportion to consumption. ?

Baidu Encyclopedia - Savings Life Cycle Theory