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    Households

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    Chan Myae Khin
    1. Key factors that influence household spending, savings and borrowing include income, interest rates, confidence levels, inflation, age and household size. 2. A household's level of income is the primary determinant of how much they spend; higher incomes lead to more spending and savings while taxation reduces disposable income. 3. Younger households tend to spend most of their income on goods and services while older households save more for retirement and children's education.

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    Households

    Uploaded by

    Chan Myae Khin
    44 views13 pages
    1. Key factors that influence household spending, savings and borrowing include income, interest rates, confidence levels, inflation, age and household size. 2. A household's level of income is the primary determinant of how much they spend; higher incomes lead to more spending and savings while taxation reduces disposable income. 3. Younger households tend to spend most of their income on goods and services while older households save more for retirement and children's education.

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    1. Key factors that influence household spending, savings and borrowing include income, interest rates, confidence levels, inflation, age and household size. 2. A household's level of income is the primary determinant of how much they spend; higher incomes lead to more spending and savings while taxation reduces disposable income. 3. Younger households tend to spend most of their income on goods and services while older households save more for retirement and children's education.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    44 views13 pages

    Households

    Uploaded by

    Chan Myae Khin
    1. Key factors that influence household spending, savings and borrowing include income, interest rates, confidence levels, inflation, age and household size. 2. A household's level of income is the primary determinant of how much they spend; higher incomes lead to more spending and savings while taxation reduces disposable income. 3. Younger households tend to spend most of their income on goods and services while older households save more for retirement and children's education.

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    HOUSEHOLDS

    UNDERSTAND THE FACTORS THAT INFLUENCE HOUSEHOLD


    SPENDING, SAVINGS AND BORROWING
    INFLUENCES ON HOUSEHOLD SPENDING

    1. INCOME – KEY DETERMINANT


    2. INTEREST RATES
    3. CONFIDENCE LEVELS
    4. INFLATION
    5. AGE
    6. THE SIZE OF HOUSEHOLDS
    INCOME

    • THE AMOUNT OF MONEY THAT INDIVIDUALS SPEND ON GOODS AND SERVICES IS


    LARGELY DEPENDENT UPON THEIR LEVEL OF INCOME.
    • THE MAIN SOURCE OF INCOME FOR MOST PEOPLE IS WAGES OR SALARIES
    • OTHER SOURCES
    • INTEREST ON SAVINGS
    • RENT EARNED FROM LEASING PROPERTY (RETURN ON LAND)
    • DIVIDENDS — A SHARE OF A COMPANY’S PROFITS — FROM SHARES OWNED IN A
    COMPANY (RETURN ON ENTERPRISE)
    • PROFIT EARNED FROM RUNNING A BUSINESS (RETURN ON ENTERPRISE)
    DISPOSABLE INCOME

    • DEFINITION
    • DISPOSABLE INCOME IS THE AMOUNT OF INCOME A PERSON HAS AVAILABLE TO SPEND ON
    GOODS AND SERVICES AFTER COMPULSORY DEDUCTIONS SUCH AS INCOME TAX.

    • HOUSEHOLDS ARE NOT ABLE TO SPEND ALL OF THE INCOME THEY EARN; THEY CAN
    ONLY SPEND THEIR DISPOSABLE INCOME
    • THERE IS A POSITIVE RELATIONSHIP BETWEEN THE LEVEL OF SPENDING AND THE
    INCOME EARNED — THAT IS, HIGHER LEVELS OF DISPOSABLE INCOME USUALLY LEAD TO
    HIGHER SPENDING AND HIGHER SAVINGS.
    • DIRECT TAXATION REDUCES THE AMOUNT OF INCOME A PERSON RECEIVES, SO HIGHER
    INCOME TAX RATES CAN LOWER THE LEVEL OF DISPOSABLE INCOME AND THEREFORE
    CONSUMPTION.
    DIFFERENT INCOME LEVEL
    • DIFFERENT INCOME LEVELS AFFECT DIFFERENT TYPES OF EXPENDITURE.
    • FOR EXAMPLE, LOW INCOME EARNERS WILL SPEND A GREATER PROPORTION OF
    THEIR INCOME ON FOOD AND NECESSITIES WHEREAS HIGH INCOME EARNERS
    WILL SPEND A LOWER PROPORTION OF THEIR INCOME ON FOOD AND
    NECESSITIES
    • SEE TABLE 17.1
    • CURRENT EXPENDITURE IS MONEY SPENT ON GOODS AND SERVICES CONSUMED
    WITHIN THE CURRENT YEAR. SUCH AS THE SPENDING ON FOOD, CLOTHING,
    ENTERTAINMENT AND HAIRCUTS.
    • CAPITAL EXPENDITURE IS MONEY SPENT BY ON FIXED ASSETS (ITEMS OWNED BY
    AN INDIVIDUAL OR FIRM WHICH LAST MORE THAN 12 MONTHS), SUCH AS
    COMPUTERS, CARS, FURNITURE, BUILDINGS AND EQUIPMENT.
    THE WEALTH OF THE INDIVIDUAL
    • THE WEALTH OF AN INDIVIDUAL IS MEASURED BY THE AMOUNT OF ASSETS
    THEY OWN MINUS THEIR LIABILITIES (THE AMOUNT THEY OWE).
    • WHEN THE VALUE OF ASSETS, SUCH AS PROPERTY AND OTHER INVESTMENTS,
    INCREASES THERE IS SAID TO BE A POSITIVE WEALTH EFFECT.
    • THIS CAUSES PEOPLE TO SPEND MORE.
    • IN SOME CASES, IT ALSO CAUSES OWNERS OF ASSETS TO BORROW AGAINST THE
    VALUE OF THEIR EXISTING ASSETS, SUCH AS RESIDENTIAL OR COMMERCIAL
    PROPERTY.
    • BY CONTRAST, IF THE VALUE OF AN ASSET DECREASES, THE WEALTH EFFECT
    CAN BECOME NEGATIVE.
    • FOR EXAMPLE, A SEVERE RECESSION CAN CAUSE SOME PEOPLE TO EXPERIENCE
    NEGATIVE EQUITY — WHEN THE VALUE OF THEIR SECURED LOAN OR
    THE WEALTH OF THE INDIVIDUAL

    • CONSPICUOUS CONSUMPTION OCCURS WHEN PEOPLE PURCHASE GOODS AND


    SERVICES THAT THEY FEEL INCREASE THEIR STATUS OR IMAGE.
    • FOR EXAMPLE, A PERSON MAY BUY A VERY EXPENSIVE CAR, YACHT, DIAMOND
    RING OR DESIGNER HANDBAG AS A STATUS SYMBOL.
    • WEALTHY PEOPLE TEND TO ENGAGE IN CONSPICUOUS CONSUMPTION
    INTEREST RATES

    • INTEREST RATES DETERMINE THE COST OF BORROWING OR LENDING MONEY.


    • AN INCREASE IN INTEREST RATES MAY LEAD TO DECREASED CONSUMER
    SPENDING, LESS BORROWING AND MORE SAVING BECAUSE:
    • BORROWING BECOMES MORE EXPENSIVE AND THEREFORE THE DEMAND FOR LOANS
    FALLS, WHICH LEADS TO LESS CONSUMER SPENDING
    • SAVINGS MAY BECOME MORE ATTRACTIVE DUE TO THE HIGHER RETURN, SO
    INDIVIDUALS MAY SAVE MORE AND SPEND LESS
    • IF AN INDIVIDUAL HAS AN EXISTING LOAN OR MORTGAGE, THE INCREASE IN
    INTEREST REPAYMENTS IS LIKELY TO CAUSE A FALL IN DISPOSABLE INCOMES, SO
    SPENDING FALLS
    INTEREST RATES
    CONFIDENCE LEVELS
    • THE LEVEL OF SPENDING IN AN ECONOMY IS HEAVILY INFLUENCED BY THE LEVEL
    OF CONSUMER AND BUSINESS CONFIDENCE IN AN ECONOMY.
    • DURING A RECESSION OR A PERIOD OF LOW ECONOMIC GROWTH, PEOPLE MAY
    PREFER TO SAVE RATHER THAN SPEND AS THEY LACK CONFIDENCE ABOUT THE
    FUTURE OF THE ECONOMY, SUCH AS FEARING THAT THEY MAY LOSE THEIR JOB.
    • BY CONTRAST, DURING AN ECONOMIC BOOM OR A PERIOD OF HIGH ECONOMIC
    GROWTH, PEOPLE AND FIRMS FEEL CONFIDENT ABOUT THE FUTURE AND
    THEREFORE PURCHASE MORE GOODS AND SERVICES.
    • THE SALE OF LUXURY ITEMS SUCH AS RESTAURANT MEALS, SPA TREATMENTS
    AND FOREIGN HOLIDAYS INCREASES.
    • FIRMS MAY INVEST MORE IN NEW EQUIPMENT AND TECHNOLOGY BECAUSE THEY
    FEEL CONFIDENT ABOUT THE FUTURE.
    • THIS CREATES JOBS AND FUELS SPENDING, BORROWING AND SAVING
    INFLATION

    • THE GENERAL LEVEL OF PRICES IN THE ECONOMY INFLUENCES CONSUMER


    SPENDING BECAUSE AN INCREASE IN INFLATION REDUCES THE PURCHASING
    POWER OF INDIVIDUALS.
    • THEREFORE, INFLATION TENDS TO CAUSE REDUCED SPENDING, LESS SAVING
    AND MORE BORROWING, AND VICE VERSA
    AGE
    • A PERSON’S AGE IMPACTS UPON THEIR LEVEL OF CONSUMER SPENDING.
    • A YOUNG SINGLE PERSON MAY EARN A RELATIVELY LOW INCOME AND MAY SPEND
    MOST OF IT ON GOODS AND SERVICES TO SUPPORT THEIR LIFESTYLE.
    • AS A PERSON GETS OLDER THEIR EARNINGS WILL TYPICALLY RISE AND THEY MAY
    START TO SAVE A GREATER PROPORTION OF THEIR INCOME TO BUY A PROPERTY OR IN
    ANTICIPATION OF MARRIAGE AND CHILDREN.
    • DURING THE FAMILY STAGE OF A PERSON’S LIFE, THEY WILL SPEND MORE OF THEIR
    INCOME ON THEIR CHILDREN BUT MIGHT ALSO HAVE TO SAVE FOR THEIR CHILDREN’S
    UNIVERSITY EDUCATION AND TO BUILD UP A PENSION TO SUPPORT THEMSELVES WHEN
    THEY RETIRE.
    • AFTER RETIREMENT, PEOPLE DISSAVE (THE OPPOSITE OF SAVING) AS THEY HAVE NO
    EARNED INCOME, SO MUST SPEND FROM THEIR SAVINGS.
    THE SIZE OF HOUSEHOLDS

    • THE AVERAGE SIZE OF HOUSEHOLDS HAS CHANGED OVER TIME.


    • IN ECONOMICALLY DEVELOPED COUNTRIES, BIRTH RATES ARE FALLING AS
    PEOPLE CHOOSE TO MARRY LATER IN LIFE AND HAVE FEWER CHILDREN.
    • THERE HAS ALSO BEEN AN INCREASE IN SINGLE HOUSEHOLDS.
    • THIS INFLUENCES EXPENDITURE PATTERNS BECAUSE, FOR EXAMPLE, A FAMILY
    WITH THREE CHILDREN WILL USUALLY CONSUME MORE GOODS AND SERVICES
    THAN A SINGLE-PERSON HOUSEHOLD.

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