ABSTRACT
Households are the decision-making unit for much of the consumption and saving which occurs within the economy. This chapter focuses on the life cycle trajectory of these outcomes. We relate these to the earnings of household members. Annual earnings in the long run can be combined in a kind of averaging to estimate the “permanent income” of the household, and there is evidence that households respond to their knowledge of this permanent income by borrowing and saving in any particular year so as to even out their consumption across years with unusually low or high earnings. However, the resulting “smoothing” of consumption is far from perfect, and we examine how the amount and timing of childbearing and household composition change affect consumption and savings. This discussion provides a link between social demography and macroeconomic performance.
