Lecture 5: Household Saving and Investment Decisions Objective Households Financial decisions making over life cycle with or without government policy influence .THE COURSE OF FINANCE 2017 SPRING SJTU 1
Lecture 5: Household Saving and Investment Decisions •THE COURSE OF FINANCE 2017 SPRING SJTU •1 Objective • Households Financial decisions making over life cycle with or without government policy influence
Chapter 5 Contents 5.1 A Life-Cycle Model of Savings 5.2 Taking Account of Social Security 5.3 Deferring Taxes through Voluntary Retirement Plans 5.4 Should you Invest in a Professional Degree? 5.5 Should you Buy or Rent? .THE COURSE OF FINANCE 2017 SPRING SJTU 2
Chapter 5 Contents 5.1 A Life-Cycle Model of Savings 5.2 Taking Account of Social Security 5.3 Deferring Taxes through Voluntary Retirement Plans 5.4 Should you Invest in a Professional Degree? 5.5 Should you Buy or Rent? •THE COURSE OF FINANCE 2017 SPRING SJTU •2
Objectives How much to save for retirement Whether to defer taxes or pay them now Whether to get a professional degree Whether to buy or rent an apartment .THE COURSE OF FINANCE 2017 SPRING SJTU y
Objectives How much to save for retirement Whether to defer taxes or pay them now Whether to get a professional degree Whether to buy or rent an apartment •THE COURSE OF FINANCE 2017 SPRING SJTU •3
5.1 A Life-Cycle Model of Saving Assume that you are currently 35 years old,expect to retire in 30 years at 65,and then live for 15 more years until 80 Your real labor income is $30,000/year until age 65 Interest rates exceed inflation by 3%/year .THE COURSE OF FINANCE 2017 SPRING SJTU
5.1 A Life-Cycle Model of Saving Assume that you are currently 35 years old, expect to retire in 30 years at 65, and then live for 15 more years until 80 Your real labor income is $30,000/year until age 65 Interest rates exceed inflation by 3%/ year •THE COURSE OF FINANCE 2017 SPRING SJTU •4
How Much Should I Save and Consume? Two approaches are suggested: 1.Target replacement rate of pre-retirement income 2.Maintain the same level of consumption spending .THE COURSE OF FINANCE 2017 SPRING SJTU 5
How Much Should I Save and Consume? Two approaches are suggested: 1. Target replacement rate of pre-retirement income 2. Maintain the same level of consumption spending •THE COURSE OF FINANCE 2017 SPRING SJTU •5