The greater the amount of your dept the lower the

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The greater the amount of your dept, the lower the level of your credit. The greater the amount of your dept the lower the level of your credit. 4) Conspicuous consumption – Thorstein Veblen Keeping up with the Jones Buying things because your friend has it, not because you need it. 5) Future price expectations DETERMINANTS OF SAVINGS Saving maybe viewed as a residual of disposable income. On an average, American save 5% of their D.I APS = .05 Reasons why people would save? 1) To provide for their old age 2) For their children’s education 3) To buy big ticket item such as a house, vacation, etc. 4) Interest rate – opportunity cost Why do we spend so much and save so little? Traditionally, it is the middle-aged who do the bulk of the nation’s saving. But today’s middle-aged, the bay boomers born in the late 1940s and in the 1950s, are spending as if there were no tomorrow. Most of this spree is financed by tax-deductible home equity loans.
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- 4 - PERMANENT INCOME HYPOTHESIS Milton Friedman - Current consumption does not necessary depend on your current income but depends on your lifetime income. Nobody know for sure how much you will earn in your lifetime. It depends on education and life span.
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