"Consumption smoothing" can be dangerous, says Johnson's Bob Frank

6/17/2011 3:52:00 PM

Frank tells Yahoo Finance that consuming/spending more when young can lead to heightened (and often economically unrealistic) expectations down-the-road

Excerpt from "Living within your means," (Yahoo Finance, June 15):

The pure economic model suggests that households should shift resources from the future to the present to achieve a steady living standard over time, something known as consumption smoothing...

[But] there are distinct psychological downsides to borrowing while you're young in the name of income smoothing, says economist Robert Frank of Cornell University. "It ignores the basic psychology of consumption," says Frank. "If you consume more [at a young age], you get used to it, and that means you have to keep consuming more or you become disappointed in what you consume." MORE
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