Life-cycle hypothesis

Most people see their incomes improve as their career progresses. But their need to spend is less variable than their incomes. So the life-cycle hypothesis, proposed by Franco Modigliani, an Italian-American economist and Nobel laureate, suggests that they will borrow to fund their spending (or to buy a house) at the start of their careers, save as they approach retirement and run down their savings after they stop working. See also permanent income hypothesis.