Suggests that individuals attempt to maximize the utility of their future consumption by tailoring consumption patterns according to stages in their lives. This lead to increased borrowing in the early years, paying off debts and saving during working years, while dissaving during retirement. When evaluating age and wealth, a predictable ‘hump-shaped’ pattern occurs where wealth peaks - around retirement age. Based on this profile, it’s implied that a country’s saving rate depends on its economic growth rate rather than per capita income levels.
Built by Franco Modigliani and Richard Brumberg (1952)