Sarah and Diane are both billing clerks for the local trucking company earning $17,000 per year. Sarah is attending college, plans to graduate in one year and earn $55,000 as an economist. Diane is not in college or undergoing any specialized training and will have the same job next year. According to economic theory, which of the two individuals would tend to have a higher current savings rate?

Question

Quizplus · Accepted Answer

Economic theory suggests that individuals with higher future earnings potential tend to have lower current savings rates, as they can afford to consume more now with the expectation of earning more in the future. Therefore, Diane, who has no plans for higher earnings in the future, is likely to have a higher savings rate than Sarah, who plans to earn significantly more in the future as an economist.

Sarah and Diane Are Both Billing Clerks for the Local