Chapter 17 Households Flashcards
Define disposable income
income after income tax has been received and state benefits received
Define consumption
expenditure by households on consumer goods and income
Define dissaving
When consumption is higher than disposable income
Define saving
When disposable income is higher than consumption
Which people might experience dissaving?
People with low income
Which people might have equal consumption and disposable income
Relatively low incomes which just cover living expenses
Which people might be experiencing saving
Middle and high incomes
Relationship between savings and income
Proportion of income saved increases and income increases
Examples of dissavings (2)
Borrowing
- Credit card
- overdraft (going negative on bank acc)
Using savings
- Reduces wealth
Examples of savings (2)
bank deposits
assets
-stocks
-houses
-govt bonds
Define interest rate
A charge for borrowing money and a payment for lending money
Define wealth
Stock of assets
What are the different things that influence spending(4)
Disposable income
- As income increases, spending increases
Rate of Interest
- Higher interest rate —-> Expenditure decrease (saving is more rewarding)
Advances in Technology
- New goods/services encourages people to spend, replacing existing products
Wealth
1. Wealth generates income (eg: dividends)
2. Wealth can be cashed in (selling a car)
3. Wealth can act as security when taking out loans
4. Wealth affects confidence
Relationship between income and consumption
As income increases spending increases but spending as a proportion of income decreases and savings increases
Reasons for Saving (3)
Specific expensive items
For children
For more money
Factors influencing savings (4)
Disposable income
- As disposable income increases, saving increases
The rate of interest
- Higher the interest rate, the higher savings will be
Age strucutre of population
- young + old don’t save
- middle aged save more
Social attitude
- some cultures prefer to save more than others
Reasons for borrowing (4)
“consumption soothing”
- borrow at times of life when income low and pay back when income is high
Desperation/meet basic living needs
To buy a house
To fund education
Differents ways of borrowing (3)
Loans from banks
Credit cards
overdrafts
Factors that influence the ampunt of money people are willing to borrow
The availability of loans and overdrafts
Rate of Interest
Confidence
Social attitudes
