The Life-Cycle Model of Consumption and Saving - Literature review Example

The Life-Cycle Model of Consumption and Saving tells us that younger people have a tendency to borrow money so they can spend it on education and housing ( Browning and Crossley, 2001). Young people spend their money on buying things while they are young professionals. As for young people, their tendency is to go overboard in their purchases which make them work harder to pay off credit card debts. Because of this young people incur debts through credit card. If this is a common behavior for most people, then old people have few money left for them at that time they badly need it: for hospitalization and burial.

By the time these young people reach middle age, debts have already piled up since they are burdened with their child’s education and house mortgage. As they approach old age or retirement, the savings ( if there are any) are slowly used since they get sickly and have medical bills. Over-all, a person’s savings in a lifetime is really small unless you are used to saving money as a habit. In conclusion, if citizens of a country continue behaving this way, then the whole economy suffers because of the low rate of savings needed to support the overall financial situation of a country.