Consumption Smoothing
Categories: Econ, Financial Theory
Consumption smoothing is something we are all very familiar with. We want to be rich, but we also want to have fun. Is the trip to Vegas really going to be worth it? Will the Louboutins really make the dress? These are some of the questions we ask when attempting to use consumption smoothing.
If you’re one of those people who says “heck yeah, I’m in for a weekend in Vegas!" (even though you have 60 bucks in your bank account...that’s what credit cards are for, right?), you are going to have to work much longer before you’ve saved up enough to retire. On the other hand, if you sit home watching Netflix and eating frozen pizza after working a 60-hour work week, you will probably be able to retire young and ball out after you do.