The income households receive is not their only source of money for spending. The ability to spend depends upon the amount of wealth held as well as one the amount of income received. Money for spending can be obtained by withdrawals from savings accounts and from the sale of other forms of personal wealth, such as shares, property.Jewellery, land, etc.
Schemes which allow people to borrow, such as hire-purchase facilities and bank loans, make it possible for household to spend more than their current income. This is only possible over a fairly short period, because the loan have to be repaid. The cost of borrowing is the rate of interest which has to be paid on the loan. Changes in the rate of interest, therefore, will affect the ability and willingness to borrow. If it became easier and cheaper to obtain goods on credit ( i.e. by borrowing ), there would tend to be a significant increase in consumer spending on durable consumer goods.
Changes in the distribution of income
We have seen that lower-income households spend a greater proportion of their income than households with larger incjmes do. This means that a policy which transfers income from the better off to the less well of willtend to increase total consumer spending. For example, suppose one pound is taken, in the form of taxation, from a high-income household and transferred, in the form of a social security benefit, to a much poorer household. The high-income household might have spend 60p of the pound and saved 40p; the poorer household is more likely to spend the whole of the pound.
1) What sources of money for spending do you know?
2) What is the cost of borrowing?
3) What does the ability to spend depend on?
4.4. Changes in household expenditure.
Statistics of households’ expenditure show how the pattern of spending changes as living standards improve. These changes are due mainly to the increase in real incomes, but changes in taste and fashions, and the introduction of new consumer goods, have also been imp
UK household expenditure, 1953 – 86 Table 4.1
Percentage of total expenditure
1953 – 54 1986
Housing 8,8 16,4
Fuel,light and power 5,2 5,6
Food 33,3 19,3
Alcoholic drink 3,4 4,5
Tobacco 6,6 2,5
Clothing and footwear 11,8 7,8
Durable household goods 6,8 7,9
Other goods 7,0 7,8
Transport and vehicles 7,0 14,9
Services 9,5 12,9
Miscellaneous 0,6 0,4
Source: Family Expenditure Survey, HMSO, 1986
Table 4.1 show the changes which have taken place in the distribution of household expenditure in the UK in period 1953 – 86. Note that is does not show the amount of money spent on each item: it show the proportion of total household spending devoted to it.
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