HOUSEHOLDS

Disposable income is the income of a person after all income-related taxes and
charges have been deducted.

SPENDING (CONSUMPTION)
The buying of goods and services is called consumption. The money spent on
consumption is called consumer expenditure.
People consume to satisfy their needs and wants and give them satisfaction.

Factors affecting consumption:

• Disposable income: the more disposable income, the more people consume.
• Wealth: the wealthier (having assets such as property, jewels, company
shares) a person is, the more he spends.
• Consumer confidence: if consumers are confident of keeping their jobs and
their future incomes, then they might be encouraged to spend more now,
without worries.
• Interest rates: if interest rates provided by banks on saving are high,
consumers might save more so they can earn interest and thus consumer
expenditure will fall.

SAVING
Saving is income not spent (or delaying consumption until some later date). People
can save money by depositing it in banks and withdraw it a later date with the
interest.
Factors affecting saving:
• Saving for consumption: people save so that they can consume later. They
save money so that they can make bigger purchases in the future (a house, a
car etc.). Thus, saving can depend on the consumers’ future.
• Disposable income: if the amount of disposable income people have is high,
the more likely that they will save. Thus, rich people save a higher proportion
of their incomes than poor people.
• Interest rates: people also save so that their savings may increase overtime
with the interest added. Interest is the return on saving; the longer you save
an amount and the higher the amount, the higher the interest received.
• Consumer confidence: if the consumer is not confident about his job security
and income in the future, he may save more now.
• Availability of saving schemes: banks now offer a variety of saving schemes.
When there are more attractive schemes that can benefit consumers, they
might resort to saving rather than spending.

BORROWING
Borrowing, as the word suggests, is simply the borrowing of money from a
person/institution. The lender gives the borrower money. The lender is usually the
bank which gives out loans to customers.
Factors affecting borrowing:
• Interest rates: interest is also the cost of borrowing. When a person takes a
loan, he must repay the entire amount at the end of a fixed period while also
paying an amount of interest periodically. When the interest rates rise, people
will be reluctant to borrow and vice versa.
• Wealth/Income: banks will be more willing to lend to wealthy and high-
income earning people because they are more likely to be able to repay the
loan, rather than the poor. So even if they would like to borrow, the poor end
up being able to borrow much less than the rich.
• Consumer confidence: how confident people feel about their financial
situation in the future may affect borrowing too. For example, if they think
 that prices will rise (inflation) in the future, they might borrow now, to make
big purchases now.
• Ways of borrowing: the no. of ways to borrow can influence borrowing.
Nowadays there are many borrowing facilities such as overdrafts, bank loans
etc. and there are more credit (future payment) options such as hire purchases
(payment is made in installments overtime), credit cards etc.

Expenditure patterns between income groups

The richer people spend, save, and borrow more amounts than the poor.
The poor spend higher proportions of their disposable income, especially on
necessities, than the rich.
The poor save lesser proportions of their disposable income in comparison with the
rich.