Consumption Pattern and Expenditure


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Consumption Pattern and Expenditure

  1. 1. Chapter 6 Consumption Pattern and Expenditure
  2. 2. Consumption Pattern <ul><li>Consumption means the goods (commodities) , their uses, and services consumed eg. Food, clothing, child care </li></ul><ul><li>Consumption includes </li></ul><ul><ul><li>having available, as well as using free goods of nature and public goods that are utilized without charge and </li></ul></ul><ul><ul><li>self-service and mutual service </li></ul></ul><ul><ul><li>in addition to purchased goods (commodities) and services and </li></ul></ul><ul><ul><li>the use of semi-durable and durable goods owned or rented </li></ul></ul>
  3. 3. Consumption Pattern (cont.) <ul><ul><li>Consumption can be studied in terms of relationships among consumption categories – consumption pattern </li></ul></ul><ul><ul><li>Consumption pattern is the way elements of consumption are combined to form level of consumption as a whole </li></ul></ul><ul><ul><li>Three ways to describe level of consumption </li></ul></ul><ul><ul><li>i) By the kinds and amounts of goods & services consumed in the household eg how many kilos of butter, pairs of shoes </li></ul></ul><ul><ul><li>By the way these good are organised for use – the tendency for products to be chosen in clusters, with choice of one product leading to choice of others of the same style & the activities associated with product use eg. variety of sports products </li></ul></ul><ul><ul><li>By the values that underlie the choices of a household eg. safety, cheap, comfortable </li></ul></ul>
  4. 4. Consumption Pattern (cont.) <ul><li>Categories of consumption pattern in Household Expenditure Survey (HES) </li></ul><ul><li>Food </li></ul><ul><li>Beverages and tobacco </li></ul><ul><li>Clothing and footwear </li></ul><ul><li>Gross rent, fuel and power </li></ul><ul><li>Furniture, furnishing, and household equipment and operation </li></ul><ul><li>Medical care & health expenses </li></ul><ul><li>Transport and communication </li></ul><ul><li>Recreation, entertainment , education & cultural services </li></ul><ul><li>Miscellaneous goods & services </li></ul><ul><ul><li>Expenditure on food away from home, expenditure on beverages away from home, others </li></ul></ul>
  5. 5. Consumption Pattern (cont.) <ul><ul><li>Constraint on consumption </li></ul></ul><ul><ul><li>Price or cost of goods & services </li></ul></ul><ul><ul><ul><li>High price or cost limited the purchase of goods and services </li></ul></ul></ul><ul><ul><li>Amount of resources (esp money income, wealth, family’s own labor) available to the family for use in acquiring household goods </li></ul></ul><ul><ul><ul><li>Price is the quantity of resource needed to acquire a unit of commodity. Thus, resources also influence consumption in combination with price </li></ul></ul></ul><ul><ul><li>Characteristics of the environment or choice situation </li></ul></ul><ul><ul><ul><li>Environmental‘s constraint on consumption choices is the availability of market goods & services </li></ul></ul></ul>
  6. 6. Consumption Pattern & Expenditure <ul><li>Consumption expenditure covers </li></ul><ul><li>All money spent by household members on goods and services meant for consumption and also </li></ul><ul><li>2. Value of goods and services received in kind. Thus, included also free or concessional goods and services (eg free housing), the value of home-produce consumed </li></ul>
  7. 7. Consumption Pattern & Expenditure (cont.) <ul><li>Current need and future need </li></ul><ul><li>Basic need </li></ul><ul><li>Food, clothing, shelter </li></ul><ul><li>Careful evaluation on the expenditure on this needs may result in savings </li></ul><ul><li>The expenditure on basic needs are throughout the life-cycle as those are needed to survive </li></ul><ul><li>These are the current need and also the future need that must always be fulfilled </li></ul>
  8. 8. Consumption Pattern & Expenditure (cont.) <ul><li>Non-basic need </li></ul><ul><li>Is the current need only, or future need only or can be both </li></ul><ul><li>Transportation, education, insurance </li></ul><ul><li>Transportation is used throughout our life-cycle – to move form one place to another either going to work, doing family activities or comunity activities </li></ul>
  9. 9. Consumption Pattern & Expenditure (cont.) <ul><li>In spending, have to </li></ul><ul><li>Know the need towards certain item </li></ul><ul><li>Choose suitable item according to need </li></ul><ul><li>Make wise decision on purchasing - survey the price, quality, time to buy, method of payment either by cash or credit </li></ul><ul><li>After purchasing – know how to maintain the item, as this could help to reduce cost of repairing & thus it would last longer </li></ul>
  10. 10. Expenditure <ul><li>Housing Need </li></ul><ul><li>Home ownership – main goal & involve high cost, consider your wants and ability </li></ul><ul><li>Prepare for the downpayment needed & estimate the cost or price - may need 10% or 15% of the total cost as the downpayment </li></ul><ul><li>Estimate other costs – legal fees, transfer title, stamp duty </li></ul><ul><li>For a good decision on shelter or housing, need more time to consider the choices on housing, think about the advantages and disadvantages </li></ul>
  11. 11. Expenditure <ul><li>The location of the house or the environment – look for comfort </li></ul><ul><li>When to buy or build the house </li></ul><ul><li>Type of house – condominium, apartment, double-storey, semi-detached, bungalow – depends on the type of work, life-style, income, family size and age </li></ul><ul><li>Status of the house – freehold or lease-type </li></ul><ul><li>Consider your wants – what criteria or characteristic of the house are important to you eg spacious living room, have a family hall, single storey </li></ul><ul><li>Affordable price or cost </li></ul><ul><li>Choice of home loan </li></ul>
  12. 12. Expenditure (cont.) <ul><li>Type of ownership – rent or own a house (buy or build the house) </li></ul><ul><li>When to rent? </li></ul><ul><ul><li>Rent when the period of staying in a certain place is short or in the early time of working or when you are single, or frequently changing job </li></ul></ul><ul><ul><li>Advantages of renting: </li></ul></ul><ul><ul><li>Less cost compared to paying for downpayment or other cost as in buying a house </li></ul></ul><ul><ul><li>Less cost & less time used in managing the house – no repair cost or maintenance cost </li></ul></ul>
  13. 13. Expenditure (cont.) <ul><ul><li>Disadvantages of renting: </li></ul></ul><ul><ul><li>The rental payment is an expense and not an investment or savings </li></ul></ul><ul><ul><li>Rental may increase due to inflation </li></ul></ul><ul><ul><li>Unable to make any renovation as you pleased </li></ul></ul>
  14. 14. Expenditure (cont.) <ul><ul><li>Own a house – buy or build the house </li></ul></ul><ul><ul><li>Advantages: </li></ul></ul><ul><ul><li>Feel secured having a permanent shelter, feel proud of owning a house, more responsible in maintaining the house </li></ul></ul><ul><ul><li>A fixed monthly payment or expenses, not fluctuating or increasing </li></ul></ul><ul><ul><li>As the installment ends, the house is yours </li></ul></ul><ul><ul><li>In a long-term, better to own a house than renting one </li></ul></ul>
  15. 15. Expenditure (cont.) <ul><ul><li>Disadvantages of owning a house: </li></ul></ul><ul><ul><li>Buying a house need a large amount of downpayment involving large amount of cash </li></ul></ul><ul><ul><li>If the purchasing is made too early, the cash savings is used up and reduces the emergency fund </li></ul></ul><ul><ul><li>Owning a house in a short period of time is expensive compared to a long-term as paying for costs such as legal fees, stamping duty, fees for transferring title etc may be larger than the appreciate value of the house </li></ul></ul>
  16. 16. Expenditure (cont.) <ul><ul><li>Transportation Need </li></ul></ul><ul><ul><li>Cost to own a car to buy certain type of car </li></ul></ul><ul><ul><li>Repair and maintenance or service costs </li></ul></ul><ul><ul><li>Type of car according to your preference </li></ul></ul><ul><ul><li>Duration of owning a certain car - to reduce the repair cost own for a shorter period of time. Old cars might incur higher cost </li></ul></ul><ul><ul><li>Better to a brand new car compared to a use car as maintenance cost is higher </li></ul></ul>
  17. 17. Expenditure (cont.) <ul><ul><li>Clothing Need </li></ul></ul><ul><ul><li>Protection from weather, a psychological protection from social pressure, for comfort, esthetical value </li></ul></ul><ul><ul><li>clothing need differs according to age, interest, values, status, amount of money available </li></ul></ul><ul><ul><li>Suitable clothing helps in physical and cognitive development </li></ul></ul><ul><ul><li>Consider whether a certain type of clothing is needed, function as a clothing, its uses, the amount of clothes, price, cost, buy or do-it-yourself </li></ul></ul>
  18. 18. Expenditure (cont.) <ul><ul><li>Other Need </li></ul></ul><ul><ul><li>Education </li></ul></ul><ul><ul><li>Higher education level, better financial resources </li></ul></ul><ul><ul><li>Important in fulfilling various needs and wants apart from comfort and security </li></ul></ul><ul><ul><li>Higher cost in pursuing higher level of education </li></ul></ul><ul><ul><li>Insurance </li></ul></ul><ul><ul><li>Type of insurance suitable for certain individual </li></ul></ul><ul><ul><li>How many life insurance policies to buy? For all family members? </li></ul></ul><ul><ul><li>Differences in insurance policies </li></ul></ul>
  19. 19. Money and Children <ul><li>Children’s physiological needs must be fulfilled </li></ul><ul><li>Expenses depending on number of children and their age </li></ul><ul><li>Education cost depends on number of children </li></ul><ul><li>Education costs – from kindergarten, tuition classes, primary and secondary school – private or public schools </li></ul><ul><li>Expenses for nurseries or baby-care centre or maids </li></ul><ul><li>Children wants are unlimited, thus parents play important role in limiting the cost on children as the children are immature in evaluating their wants </li></ul>
  20. 20. Money and Children (cont.) <ul><li>Parents should not be spending according to the their children wants to show their love and caring. Children should guide them in their wants that relates to money </li></ul><ul><li>The use of money by children is determined by parents. Parents should explain why certain wants will not be fulfilled at certain times. It may be fulfilled at some other time or cannot be fulfilled at any time. This will avoid wastage & at the same time preserve the good relationship among family members </li></ul>
  21. 21. Money and Children (cont.) <ul><li>Should know at what age children learn the value of money. The more exposed to the use of money, the faster they learn the value of money </li></ul><ul><li>Children can be taught to understand the value of money at an early age to avoid wastage as they are easily influenced by others either by the use of the same item by others or through advertisements </li></ul>