Life-Cycle Hypothesis for Consumption Pattern: Example from Indonesia

Abstract

Human life is limited, just as in generating income, humans are limited by age. People's income varies systematically throughout his life and savings allow consumers to make income flexible so that users can be moved from the time when income is high to income is low (Modigliani, 1986). Based on the study of literature, the presentation is designed to see the development of the LCH theory that can be applied to the current level of consumption in Indonesia. In general, consumption patterns of Indonesian people were more dominant in food. However, expenditure per capita living in cities for non-food consumption is higher than those in rural areas. This indicates that the income from the villagers is relative to food. Those who tend to spend on non-food, usually very little can be saved from income. The LCH model has played a vital role in seeing developments in the aspects of spending on the Indonesian population. This is the main factor why the age and health level of the population in the village is higher, but those in urban areas have superior work productivity.