3.2 - Households Flashcards
Disposable income
Income remaining for a person to spend or save after all taxes have been paid
Spending
Using money to purchase goods and services
Saving
Setting aside income for a period of time so that it can be used later
Borrowing
Obtaining money, goods, or services in exchange for promise of future payment
Household
A person or group of people living in the same residence
Major factors influencing spending (4)
- income
- wealth
- interest rate
- consumer confidence
Changes to income (spending)
Consumption increases as disposable income increases (same vice versa)
Changes to interest rate (spending)
If commercial banks change interest offers to costumer because of a change in base rate:
- higher interest causes higher interest for borrowing = less consumption
Changes to consumer confidence (spending)
If consumers feel financially secure in an economy, they will tend to spend more
- if there is a recessionary economy, consumers will feel insecure in their salaries and consumption rates and so spending decreases
Major factors influencing saving (name 4)
Saving for future consumption, interest rates, income, availability of saving schemes, consumer confidence, retirement, economic conditions (inflation = more saving due to higher prices)
Changes to income (saving)
The proportion of disposable income spent depends on the household finance:
- low income: disposable income spent on necessities and minimal luxuries (little to none left to save)
- medium income: increase consumption and saving
- high income: significant increase in savings
Changes to interest rates (saving)
Increase in interest rates offered by commercial banks will motivate households to save more
Decrease in savings interest disincentivises households to save and encourages consumption
Changes to consumer confidence (saving)
Households tend to save when they are more fearful of the future of the economy
- stronger economy means higher consumer confidence and less savings; same vice versa
Major factors influencing borrowing (name 4)
Ways of borrowing and availability of credit, Interest rates, Consumer confidence, Income
Changes in income (borrowing)
When disposable income increases so does borrowing, due to the capability of making additional monthly payments
- low income households are usually unable to borrow from commercial banks as they cannot repay the set schemes
Changes in interest rate (borrowing)
If interest rates decrease, medium & high income households decide to borrow more money, as it is now cheaper to repay
Changes in consumer confidence (borrowing)
When the economy is booming, confidence is high resulting in more borrowing & consumption
Interest rate
The additional cost of borrowing money and the reward for saving it in a commercial bank (through set schemes)
Utility
Ability or capacity of a good or service to be useful and give satisfaction to someone
Consumption
using goods and services; spending
Consumer expenditure
the total amount spent by consumers on newly produced goods and services
Real income
how much money an individual makes after accounting for inflation
Recent trends influencing spending (name 4)
- concern for the environment
- rapid advancement in technology
- population trends
- social attitude
- shorter working hours
- rise in real income
- health consciousness
How is the concern for the environment influencing spending?
increased demand for self-sufficient and non-polluting products (recycled, not tested on animals etc.)
How is a rapid advancement in technology influencing spending?
- new, expensive products have become available and have created new consumer demands
- rapid development
How are population trends influencing spending?
- increase in average life expectancy increases spending on retirement activities (e.g. vacation, healthcare)
- less money spent on children as people are marrying later or choosing not to have children
- instead they travel, self-care etc.
How have social attitude changes influenced spending?
- more opportunities within the job industry for different ethnic groups and genders
- almost everyone is working, demand for time-saving appliances (microwave etc.) has. increased
How have shorter working hours affected spending?
- technological developments take over human jobs but salaries remain stable; working online, remotely has had an increase in popularity (welcomed into jobs)
- working less hours than ever
- more leisure time, increased spending on vacations, sports etc.
How has the rise in real income affected spending?
- an increase in average income of households and higher proportions of medium income households
- enable people to spend more (leisure, luxuries etc.)
How it effected spending that people are more health conscious?
- as the disposable income of households rise, people now have the capability of spending it on long-term services that support their healthcare
- exercise has become popular (gym memberships)
What are the major saving patterns? (name 5)
- Age
- Sex
- Gender
- Career
- Wealth
- Lifestyle
- Economics situations
- Cultural attitudes
Recessionary economy
Two or more consecutive quarters of negative economic growth
Base rate
The interest rate at which the Central Bank lends money to commercial banks
