Consumption smoothing is an economic concept for the practice of optimizing a person's standard of living through an appropriate balance between savings and consumption over time. An optimal consumption rate should be relatively similar at each stage of a person's life rather than fluctuate wildly.[1][2] Luxurious consumption at an old age does not compensate for an impoverished existence at other stages in one's life.[2]
Since income tends to be hump-shaped across an individual's life, economic theory suggests that individuals should on average have low or negative savings rate at early stages in their life, high in middle age, and negative during retirement.[3][4] Although many popular books on personal finance advocate that individuals should at all stages of their life set aside money in savings, economist James Choi states that this deviates from the advice of economists.[3]
- ^ "Analysis | Shoplifting in Chicago dropped after a change in the food stamp program". Washington Post. ISSN 0190-8286. Retrieved 2022-11-07.
- ^ a b Coy, Peter (2022-09-28). "Opinion | In Retirement, You May Not Need to Spend So Much". The New York Times. ISSN 0362-4331. Retrieved 2022-11-07.
- ^ a b Choi, James J. (2022). "Popular Personal Financial Advice versus the Professors". Journal of Economic Perspectives. 36 (4): 167–192. doi:10.1257/jep.36.4.167. ISSN 0895-3309.
- ^ "On the demonisation of debt". www.ft.com. 2011.
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