HOUSEHOLDS

By the end of the lesson you should be able to identify and

clearly explain the factors that influence spending, saving and
borrowing
 SPENDING (CONSUMPTION)
Disposable income is the income of a person after all income-related taxes and charges
have been deducted.
■ The buying of goods and services is called consumption. The money they spend
through consumption is called consumer expenditure.
Why do people consume?
■ To satisfy their needs and wants and give them satisfaction

Saving is income not spent or delaying consumption until some later date. People can save
money by depositing in banks, and withdraw it a later date with the interest.

Borrowing, as the word suggests, is simply the borrowing of money from one person to
another. The lender gives the borrower money. The lender is usually the bank which gives
out loans to customers.
 Factors affecting consumption:
■ Disposable income: the more the disposable income, the more
people consume
■ Wealth: the more wealthy (assets such as property, jewels,
company shares) a person is, the more he spends
■ Consumer confidence: If consumers are confident of 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 is
high, consumers might save more so they can earn interest and
consumer expenditure will fall.
 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 (house, car etc). Thus, saving can
depend on the consumers’ future plans
■ Disposable income: if the amount of disposable income people have is high, the more
likely that they will save. Thus, rich people save more 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
incomes 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.
 Factors affecting borrowing:
■ Interest rates: interest is also the cost of borrowing. When a person takes a loan, he must
repay the entire amount with an extra amount interest, which is fixed by the bank. When
the interest rates rise, people will be more 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 lesser than
the rich
■ Consumer confidence: how confident people feel about 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, so that they can make big purchases
■ 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 have more credit
(period of payment) options such as hire purchases (payment is done in stages/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 more proportion of their disposable income,
especially on necessities, than the rich.
■ The poor save less proportion of their disposable income in
comparison with the rich.