What is “Consumption Smoothing”?

By Staff Reporters

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Consumption smoothing is the economic concept used to express the desire of people to have a stable path of consumption. People desire to translate their consumption from periods of high income to periods of low income to obtain more stability and predictability. There exist many states of the world, which means there are many possible outcomes that can occur throughout an individual’s life. Therefore, to reduce the uncertainty that occurs, people choose to give up some consumption today to prevent against an adverse outcome in the future. In order for one to adequately and properly prepare for unforeseen circumstances that can occur in the future, we must start planning today, putting money aside for when these unforeseen circumstances happen.

CITE: https://www.r2library.com/Resource/Title/082610254

SLIDESHOW: https://www.msn.com/en-us/money/news/consumption-smoothing-what-it-is-and-why-it-matters-for-your-happiness/ss-AAZDawE?cvid=2cef564778da43e9a78f601dc0c5a56a#image=1

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