Abstract
Rational consumption/saving choice requires rough knowledge regarding how much a dollar saved now could be compounded to become after various numbers of years. An indicative questionaire reveals that most people grossly underestimate the significance of compound interest. When told of the right figures, they indicate their willingness to save much more. A simple model of intertemporal optimization under plausible parameters (4-5% real rate of return) prescribe many times higher consumption at older ages than at younger ages, implying very high rates of savings when young.
| Original language | English |
|---|---|
| Pages (from-to) | 101-114 |
| Number of pages | 14 |
| Journal | Journal of Economic Behavior and Organization |
| Volume | 17 |
| Issue number | 1 |
| DOIs | |
| Publication status | Published - 1992 |