Households

Households make economic decisions in regard to:

1. Influences on spending
2. Influences on savings
3. Influences on borrowing

Spending

What are some of the household influences on spending?

1. Disposable income as a household can be spent more as the disposable increases.
2. Wealth (in terms of stock of assets) as financial assets can
   1. Generate income
   2. Be encashed
   3. Be used as collateral for loans
   4. Affect confidence
3. Rate of interest as with a higher cost of borrowing, expenditure may fall.
4. Advances in technology as the need to replace old technology could lead to an increase in expenditure.
5. Age as different ages will spend differently on leisure activities, savings, and necessities.

As income rises, households can both spend and save more, the proportion of income that is devoted to necessities decreases and the proportion saved or spent on leisure goods increases.  

Patterns on expenditure

The rich spend more than the poor(especially on leisure goods)

Difference in expenditure is observed between whole countries’ total and proportion of income.

What are some of the factors that affect spending patterns?

1. Household composition as the spending patterns can vary based on the number of people at a certain age.
2. Tastes as different household’s spending patterns are heavily affected by their tastes and fashion, including cultural activities.
3. Age because the expenditure on products changes based on the ages of the people in a household.

Savings

A saving is a deferred consumption of the accumulated wealth.

A saving can either be contractual or non-contractual.

A contractual saving is when an individual signs a contract, agreeing to save a certain amount regularly.

A non-contractual saving is when an individual places money in a bank or building society accounts, buying government securities, shares, and property. A non-contractual saving doesn’t have a contract to follow, the savings vary more with time and are more heavily influenced by changes in interest rates than contractual saving.

Why do people save?

1. Target savers who save for a particular purpose such as buying a house
2. For retirement to maintain a lifestyle during retirement
3. Finance education for children or leave an inheritance
4. Increase income by earning interest on savings

What are some of the household influences on savings?

1. Income as a higher proportion of income can be saved as it rises
2. Wealth as the wealthier people are, the more they can save.
3. Rate of interest as a rise in the rate of interest could lead to an increase in savings
4. Tax treatment of savings tax concessions on the income earned from saving will encourage more people to save.
5. Range and quality of financial institutes because a well-planned economic system will aid households in finding a greater variety of saving opportunities and people will be more likely to find a scheme that suits them
6. Age structure because the young and old tend to save less than middle-aged people.
7. Social Attitudes because certain groups have varied attitudes towards saving, some would encourage saving, while others may not suggest saving at all.

Borrowing

What is borrowing?

• Borrowing moves income from people who do not want to use it now to those who need more money than they currently have.

• Borrowing enables people to spend more money than their current disposable income.

What are some of the household influences on borrowing?

1. The availability of loans and overdrafts because the easier it is to borrow, the more likely people are to borrow.
2. The rate of interest because if the cost of borrowing increases, the less likely people are to borrow.
3. Confidence as if people are more confident about their future, the more likely people are to borrow.
4. Social attitudes as if the attitude over-borrowing is negative, the less likely people are to borrow