envestreet financial logo

Money, Spending & Saving: 3 Important Concepts of National Income that every Household Consumer should understand.

In any economy, people buy goods and pay for services to fulfil their everyday needs. Every one of us is a consumer; for us to move, work, function or even survive as human beings we need certain goods or services.

According to Maslow’s hierarchy of needs, the most basic need in every household is for physical survival, and this will be the first thing that motivates our behaviour.

The things we buy and services we pay every day create the demand, for that reason, we need firms to produce the goods or provide the services to meet these demands.

In any given economy, there has to be an equilibrium of Production and Consumption.

The households consumes goods and services to fulfil their needs and wants and the function of productive enterprises is to produce goods and services for the satisfaction of the wants.

For a good functioning economy, people need to engage in one or more productive activities, from those activities, people can earn income and spend their income on goods and services to satisfy their wants.

The economy does not only consist of households’ consumers and firms.

There is a third sector, called the Government, the government buys goods and services for the use of its various departments, and as firms.

It is also a producing unit since it runs numerous public enterprises.

Some Economic factors can affect how the household consume goods and services to fulfil their needs.

The following are the 3 main factors that affect how much you spend.

 

 1. Disposable Income.

Disposable income is the amount of money that households have available for spending after income taxes and welfare benefits have been accounted for.

Related Post:   3 Household Expenses that you should never ever sacrifice while making a Budget even if you are on a tight Budget.

It’s also known as disposable personal income (DPI).

 In most cases, household consumers will not spend money unless they are confident in their personal economic situation and strength.

When household consumers fill they have more money or anticipation of income, disposable income rises and thus consumers buy more goods. This will increase the consumption of major purchases and non-essential goods.

Most advisers advice that, it’s important to budget your disposable income since budgeting allows you to create a spending plan for your money.

Budgeting ensures that you always have enough money for the things you need and the things that are important to you.

Expert recommends that to get most out of your budget, it’s very important to be honest with yourself because, there’s no point in having a budget if you aren’t going to stick to it or maybe, the budget is unrealistic for your current lifestyle or situation.

 

 2. Household Debt.

This is all liabilities of households that require payments of interest or principal by households to the creditors at a fixed date in the future.

Consumer debt is borrowed money used to meet individual consumption rather than investments. The money borrowed is used mainly for fulfilling consumers’ basic needs.

Household debt, consist of all Consumer debts held by individuals.

They are made up of all personal debts that are owed as a result of purchasing goods that are used for individual or household consumption.

Which includes; Credit card debt, student loans, auto loans, mortgages, and payday loans.

A household may be a person or a group which may be made up of a small group of related or unrelated people or a combination of both who share the same living accommodation.

Related Post:   SALARY MAN: Lessons Teens and Young Adults can learn about Work, Money & Family from the Japanese model Karōshi

Pool some, or all, of their income to provides for his or her own basic needs like; food, shelter and other essentials for living.

Individuals who spend more than they earn from jobs will usually borrow the money in the form of credit cards or consumer loans.

In our modern society, humans desire to have better living conditions have significantly increased.

For a household to support all these lifestyle improvements, households apply to credit markets to keep up with their high lifestyle over the years.

Normally it is perceived that income generally grows at the beginning of a person’s life and reduces in the period following retirement.

Debt is the means that allows households to smooth their expenses over their lives, in most cases young people expect their future income to grow and are willing to take higher risk and spend more than they earn.

In our modern economy today, the gap in income and spending is funded by borrowing.

Due to increased borrowing, most households accumulate debts over time and that they plan to repay when their income grows in future years.

In the above framework, there are many reasons why a household may accumulate more debt than they can repay.

When consumer debts become too big for a household, analysts fear that this unusual level of debt poses a significant risk to the financial health of a person and the global economies.

 

 3. Income Inequality.

Income inequality is a significant disparity in the distribution of income between individuals, groups, populations, social classes, or Countries.

Related Post:   The reason why Millionaires are able to generate so much wealth is because they have more than one source of Income stream – understanding the 7 different Income streams that exist

Household income is a measure of the combined incomes of all people sharing a particular household or place of residence.

It includes every form of income, e.g., salaries and wages, retirement income and investment gains.

Income inequality is a major dimension of social stratification and social class.

Some people’s incomes may rise at a faster pace than others. Income inequality affects and at the same time, it’s affected by other forms of inequality, like wealth, political power, and social status.

 In our today’s life, Income is a major determinant of the well-being of individuals and societies.

This may affect the health and quality of life of individuals and families; Income inequality also varies by social factors such as sex, age, and race or ethnicity.

Low-income families may reach a living wage by spending a more significant share of each dollar on necessities.

This can benefit the economy when most of the gain goes toward low-income families.

The economy doesn’t benefit as much when increases go toward high-income earners. Because, high-income earners are more likely to save or invest instead of spending.

In our society, occupation is a central basis for differences in income for most people.

In more-developed countries such as the United States, wages and salaries are the major sources of income for most households, while property, including capital gains, is the major source for the most affluent.

Share This Post

Like This Post

0

Related Posts

0 0 votes
Article Rating
Subscribe
Notify of
guest

0 Comments
Inline Feedbacks
View all comments
0
Would love your thoughts, please comment.x
()
x