Life-Cycle Hypothesis (LCH)


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).

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.


Investment dictionary. . 2012.

Look at other dictionaries:

  • Life cycle hypothesis — The Life Cycle Hypothesis (LCH) is an economic concept analysing individual consumption patterns. It was developed by the economists Irving Fisher, Roy Harrod, Alberto Ando and Franco Modigliani.Unlike the Keynesian consumption function, which… …   Wikipedia

  • Life-cycle Income Hypothesis — Italian American Economist Franco Modigliani, winner of Nobel Memorial Prize in Economics in 1985, originated the Life cycle Income Hypothesis base on Irving Fisher s model of inter temporal choice. In Modigliani s Life cycle Hypothesis, or LCH… …   Wikipedia

  • LCH — may refer to:*County Hall, London, London, UK * Lake Charles (Amtrak station), Louisiana, United States; Amtrak station code LCH *Lake Charles Regional Airport, Lake Charles, Louisiana (IATA airport code) *Langerhans cell histiocytosis *Lexington …   Wikipedia