Management of Household Family Resources

The Household as a Financial Unit within the Economy

Definition and Role

• A household is a primary economic unit in society, contributing to and influenced by the wider economy.
• It involves managing resources, making financial decisions, and dealing with the consequences of these decisions.
• Households contribute to the economy through consumption, savings, and investment. Their spending patterns influence market demand and economic growth.

Economic Functions

• Consumption: Purchasing goods and services for daily needs, driving demand in the economy.
• Production: Engaging in activities that may generate income or add economic value, such as home gardening or freelance work.
• Distribution: Allocating resources among members, impacting their welfare and socio-economic status.
• Savings and Investment: Saving money or investing in assets like property, contributing to capital formation in the economy.

Social Factors Affecting Household Income

Age

• Income levels typically vary with age due to factors like education, experience, and retirement.
• Younger individuals often have lower incomes, which generally increase with age and experience.
• Retirement often leads to a decrease in income, relying on pensions or savings.

Gender

• Gender can influence earning potential due to societal norms, gender roles, and employment opportunities.
• There may be disparities in pay and career progression affecting household income.

Socio-economic Status

• Households from different socio-economic backgrounds have varying incomes.
• Higher socio-economic status often correlates with better education and job opportunities, leading to higher incomes.

Culture

• Cultural factors can influence career choices, attitudes towards money and savings, and family support systems.
• In some cultures, joint family systems may pool income, affecting the financial dynamics.

Sources of Household Income

Types of Income

Gross Income:

• Total income earned by the household before any deductions like taxes or social security contributions.
• Includes wages, salaries, business income, dividends, interest, and any other source.

Net Income

• Income remaining after all deductions are made from the gross income.
• Represents the actual amount available for household consumption, savings, and investment.

Sources

Employment Income

• Salaries and wages from employment.
• Includes full-time, part-time, or contractual work.

Business Income

• Revenue generated from business activities or self-employment after deducting expenses.

Investment Income

• Earnings from investments such as stocks, bonds, and real estate.

Government Benefits

• Social welfare payments, pensions, unemployment benefits, and other government-provided income sources.