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It is common in economics to model the decisions households make today as a function of lifetime consumption and earnings. The starting point of these models is the two-period model. The setup is as follows: The household exists for two periods, present (t) and future (t+1). Lifetime income is known with full certainty, with income today Yt and future income Yt+1 used for consump- tion C and C++1. In the first period households can save S, at real interest rate rt, yielding (1+r+)S, in additional future income. Borrowing in period 1 is built into the model if S