• The Life Cycle Hypothesis (LCH) is an economic theory developed in the early 1950s that states that people plan their spending throughout their lives, taking into account future income.

  • The LCH plot shows a hump-shaped pattern of wealth accumulation that is low in youth and old age and high in middle age.
  • One of the consequences of this is that young people have more opportunities to take investment risks than older people who need to use the accumulated savings.