This paper argues that the typical household’s saving behavior is better described by a "buffer-stock" version of the Life Cycle/Permanent Income Hypothesis (LC/PIH) model than the traditional version. Buffer-stock behavior emerges when consumers with significant income uncertainty are sufficiently impatient. In the traditional model, consumption growth depends solely on tastes, while buffer-stock consumers set average consumption growth equal to average labor income growth, regardless of tastes. The model explains three empirical puzzles: the "consumption/income parallel" of Carroll and Summers (1991); the "consumption/income divergence" first documented in the 1930s; and the temporal stability of the household age/wealth profile despite the unpredictability of idiosyncratic wealth changes. The paper presents a buffer-stock model that explains these phenomena by incorporating both precautionary saving motives and impatience. It shows that even with a fixed interest rate, if consumers are sufficiently impatient, average consumption growth equals average labor income growth. The model also predicts a higher marginal propensity to consume out of transitory income, a higher effective discount rate for future labor income, and a positive correlation between saving and expected labor income growth. The paper also presents simulation evidence showing that the buffer-stock model generates buffer-stock saving behavior over most of the working lifetime until around age 45 or 50, and behavior resembling the standard LC/PIH model only for the period between age 50 and retirement. The model explains three major stylized facts: the "consumption/income parallel," the "consumption/income divergence," and the patterns of wealth accumulation over the lifetime. The buffer-stock model is shown to better explain these facts than the standard LC/PIH model, a Keynesian alternative, or the Campbell and Mankiw (1989) combination of these models. The paper also discusses the implications of the buffer-stock model for empirical research, noting that typical methods of Euler equation estimation may yield meaningless results if the consumers are buffer-stock savers, as these methods assume the variance term in the Euler equation is either zero or a constant. The paper highlights the potential pitfalls of such estimation methods and provides examples illustrating how results like those found by Lawrance (1991) could arise in a buffer-stock framework despite identical time preference rates across households. The paper concludes that the buffer-stock model is capable of explaining how both of her coefficient estimates could be estimated at zero even if consumers have a strong precautionary saving motive. The implications of this discussion for the estimation of consumption Euler equations across households are grim, at least for groups of consumers who satisfy the impatience condition. However, the paper also notes that the buffer-stock model provides a way to estimate taste parameters, as equation (9) can be estimated by regressing group variances of consumption growth on group income growth rates and group-specific interest rates. This yields a direct estimate of (2/ρ) andThis paper argues that the typical household’s saving behavior is better described by a "buffer-stock" version of the Life Cycle/Permanent Income Hypothesis (LC/PIH) model than the traditional version. Buffer-stock behavior emerges when consumers with significant income uncertainty are sufficiently impatient. In the traditional model, consumption growth depends solely on tastes, while buffer-stock consumers set average consumption growth equal to average labor income growth, regardless of tastes. The model explains three empirical puzzles: the "consumption/income parallel" of Carroll and Summers (1991); the "consumption/income divergence" first documented in the 1930s; and the temporal stability of the household age/wealth profile despite the unpredictability of idiosyncratic wealth changes. The paper presents a buffer-stock model that explains these phenomena by incorporating both precautionary saving motives and impatience. It shows that even with a fixed interest rate, if consumers are sufficiently impatient, average consumption growth equals average labor income growth. The model also predicts a higher marginal propensity to consume out of transitory income, a higher effective discount rate for future labor income, and a positive correlation between saving and expected labor income growth. The paper also presents simulation evidence showing that the buffer-stock model generates buffer-stock saving behavior over most of the working lifetime until around age 45 or 50, and behavior resembling the standard LC/PIH model only for the period between age 50 and retirement. The model explains three major stylized facts: the "consumption/income parallel," the "consumption/income divergence," and the patterns of wealth accumulation over the lifetime. The buffer-stock model is shown to better explain these facts than the standard LC/PIH model, a Keynesian alternative, or the Campbell and Mankiw (1989) combination of these models. The paper also discusses the implications of the buffer-stock model for empirical research, noting that typical methods of Euler equation estimation may yield meaningless results if the consumers are buffer-stock savers, as these methods assume the variance term in the Euler equation is either zero or a constant. The paper highlights the potential pitfalls of such estimation methods and provides examples illustrating how results like those found by Lawrance (1991) could arise in a buffer-stock framework despite identical time preference rates across households. The paper concludes that the buffer-stock model is capable of explaining how both of her coefficient estimates could be estimated at zero even if consumers have a strong precautionary saving motive. The implications of this discussion for the estimation of consumption Euler equations across households are grim, at least for groups of consumers who satisfy the impatience condition. However, the paper also notes that the buffer-stock model provides a way to estimate taste parameters, as equation (9) can be estimated by regressing group variances of consumption growth on group income growth rates and group-specific interest rates. This yields a direct estimate of (2/ρ) and