Investopedia

Continue to Site »

Life-Cycle Hypothesis (LCH)

Filed Under » , ,
Dictionary Says

Definition of 'Life-Cycle Hypothesis (LCH)'

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 base consumption on a constant percentage of their anticipated life income. An example supporting the hypothesis is that people save for retirement while they are earning a regular income (rather than spending it all when it is earned).
Investopedia Says

Investopedia explains 'Life-Cycle Hypothesis (LCH)'

The Life Cycle Hypothesis concludes that the average propensity to consume is greater in both young and aging individuals, since they are borrowing against future income (in the case of young individuals) or using savings (as with aging or retired individuals). Middle-aged people, on the other hand, have a greater propensity to save and a lower propensity to consume, enhanced by a typically higher income.

Articles Of Interest

  1.

    Consumer Spending As A Market Indicator

    What people buy and where they shop can provide valuable information about the economy.

  2. What's the difference between consumer confidence and consumer sentiment?

    There isn't a difference between consumer confidence and consumer sentiment. Both terms are used to refer to the degree of confidence consumers feel about the overall economy and their personal ...

  3. 50 Years Of Consumer Spending

    Financially, decade has it MUCH worse than our parents and grandparents did, right? You may be surprised.

  4. Consumer Confidence: A Killer Statistic

    It's the key to any market economy, so investors need to learn the measures and how to analyze them.

  5. Are You Saving Too Much?

    "Spend now! Don't worry about retirement," say some experts. Could they possibly be right?

  6. Leading Economic Indicators Predict Market Trends

    Leading indicators help investors to predict and react to where the market is headed.

  7. 5 ETFs Flaws You Shouldn't Overlook

    Despite their popularity, exchange traded funds have some drawbacks that investors should know about.

  8. Great Company Or Growing Industry?

    Look at the big picture when choosing a company - what you see may really be a stage in its industry's growth.

  9. Using The Price-To-Book Ratio To Evaluate Companies

    The P/B ratio can be an easy way to determine a company's value, but it isn't magic!

  10. Prisoner's Dilemma

    Learn more about this classic game theory scenario.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Pattern Day Trader

    An SEC designation for traders who trade the same security four or more times per day (buys and sells) over a five-day period, and for whom same-day trades make up at least 6% of their activity for that period.

  2. Cost-Push Inflation

    A phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials.

  3. Happiness Economics

    The formal academic study of the relationship between individual satisfaction and economic issues, such as employment and wealth.

  4. Affluenza

    A social condition arising from the desire to be more wealthy, successful or to "keep up with the Joneses." Affluenza is symptomatic of a culture that holds up financial success as one of the highest achievements.

  5. Icarus Factor

    The term Icarus factor describes a situation where managers or executives initiate an overly ambitious project which then fails. Fueled by excitement for the project, the executives are unable to reign in their misguided enthusiasm before it is too late to avoid the failure.

  6. Angelina Jolie Stock Index

    An index made up of a selection of stocks from companies associated with actress Angela Jolie.
Trading Center