Consumer spending is Concept, definition, factors, demand stimulation, government spending statistics and personal consumption basket

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:55

Consumer spending is all spending by the population on various goods and services, expressed in monetary terms. It does not matter where exactly they were produced or provided: domestically or abroad. They are roughly classified as non-durables, durables and services. Consumer spending is the total spending on various goods and services.

Goods and services

The division by time of use of goods is rather schematic, since the time of use may also depend on the intensity with which this product is used.

Temporary goods are those that are most often thrown into the trash for a period not exceeding one year. If the averagethe period of use exceeds this period, it will be a durable item.

Temporary goods include food, some types of clothing, shoes and other products. Cars, furniture, computers and other products are durable items.

Services do not have a material form, but they are also necessary for a person throughout life. Their number and variety is very large.

Structure of consumer spending

Personal consumption spending accounts for up to 80 percent of income received. In our country, these are, first of all, expenses for the purchase of food, alcohol, various goods and utilities. The amount of consumer spending largely correlates with the amount of income. In developed countries they are much higher than in backward ones. At the same time, the poorer the country, the higher the share of expenditures associated with the purchase of food. Although in monetary terms spending on food in rich countries is still much higher.

The amount of personal consumer spending is also influenced by such a psychological factor as expectation. For example, if a person expects to be fired from a job soon, then they will spend less than another person with the same income who is expecting a promotion and salary. Spending can rise sharply in anticipation of a trade deficit.

Each person has their own individual pattern of consumer spending. It also differs by country. Naturally, whatthe richer a person becomes, the greater the share of spending on expensive, but not essential goods for life: various luxury items, expensive sweets, toys for children, masseur services, pedicure masters, etc.

Within classical Russian families, there is a very sharp difference in the structure of consumption depending on the level of material we alth. For example, poor Russian families are dominated by spending on food, which, in turn, is dominated by the segment of cheap low-quality and unhe althy products. The rest of the expenses come down to buying essentials and paying utility bills. The option of paying interest on debts is also likely.

In contrast, high-income families are dominated by spending on durable products: cars, mansions, expensive services, jewelry, household appliances, etc. Of course, expensive and better products dominate the spectrum of purchased products.

If there are cash reserves and low incomes, expenses may exceed them, which will lead to consumption of existing savings. It can also happen when money is borrowed.

Consumer spending is equal to all or a significant part of the amount that is defined as earnings minus taxes, that is, as net income. In general, up to 50 percent of this income is spent on food, 33 to 40 percent on other goods, and about 20 percent on services. These numbers, of course, vary greatly from country to country.the world and different people.

That part of the income that was not involved in consumer spending, most often goes into savings. Thus, the amount of savings growth is defined as the level of income minus consumer spending.

The role of spending in the economy

Consumer spending is very important for the development of the economy. Such an important component as the purchasing power of the population depends on them. If the value of spending on goods and services falls year by year, then this reduces the profitability of companies and increases the likelihood of their bankruptcy. As a result, the national economy seems to be blown away, which negatively affects the country's GDP. Thus, consumer spending and GDP are interconnected.

Factors affecting spending

The amount of consumer spending depends on income and the situation on the consumer market. Thanks to this market, there are opportunities for using the income received by the population. There are situations when the amount of consumer spending exceeds the net income (profit) received. In this situation, there is a need for one of two options:

Spending part of the funds from financial savings.
Accepting a bank loan or other loans.

Microcredit organizations

In Russia, to implement the second option, they often resort to the services of so-called microcredit organizations that lend at a high interest rate. Microfinance differs from bank lending in morea simple procedure for applying for a loan and fewer conditions. However, their disadvantage is a high interest rate, as a result of which a person can easily fall into a debt hole.

Microcredit became popular in the 90s, amid the deteriorating financial situation of people.

The issuance of a loan (microloan) is carried out by a microfinance organization, which is a legal entity registered as a non-profit organization or institution. The amount of one microloan should not exceed 1 million rubles.

Food spending

Consumer spending is primarily spending on groceries. After all, without them, a person simply cannot live. A person's material well-being affects the amount of food expenditure in two ways:

When the financial situation improves, the absolute amount of spending on food naturally increases.
At the same time, the share of income that goes to food tends to decrease as income increases.

Countries where 50 percent or more of their income is spent on food are considered poor, and the population living in them is underfunded.

With the minimum income of the population, the demand for quality products of medium and expensive price categories falls sharply, which ultimately affects the very meager assortment in grocery stores. Buying expensive products that few people buy will simply be unprofitable for the store.

The cheapest products - bread, cereals, pasta, milk - even a beggar will buypopulation. Meat, sweets, tea, cheeses and other mid-range products already require significantly higher consumer spending.

To calculate the cost of providing food for one person, the total cost of a family is divided by the number of its members.

In Russia, the cost of the minimum consumer basket is estimated at about 10 thousand rubles. (in 2017).

In Russia, spending on alcoholic beverages plays a big role. They are not vital, but traditionally very popular with Russians. In view of the large proportion of the poor population, vodka is the most popular kind in our country, and sometimes they even use a surrogate. However, the situation is different in Western countries. Although vodka (whiskey) is also quite popular there, high-quality wines and other expensive alcoholic drinks have a large share in the diet. As a rule, they are not so harmful or even beneficial to he alth.

Expenses incurred

Expenses incurred are defined as the sum of various types of expenses, including contingencies. The expenditures made form what is called the national product. At the same time, such spending may not correspond to the value of aggregate demand, and the economy may not be balanced.

Planned spending may be less than total supply. In this case, there may be an increase in stocks. Otherwise, there is a decrease in existing savings.

Planned expenses

Government consumer spending,together with investments and public procurement, form the planned costs. Planned expenditures depend more on the level of income than on price dynamics. Aggregate demand is more closely linked to prices.

Circulation of income and expenses

This term refers to the flow of goods and services carried out through the circulation of money between the producer and the population. In some cases, a direct exchange of goods or services is used.

What is consumption

In today's economy, consumption refers to the amount of money that consumers spend on consumer spending. Consumption depends both on the amount of income and on the willingness to spend it. Usually, people who are stingy by nature, as well as people with rational economic thinking, spend less, preferring to save (especially in the first case) or (in the second) to invest in future productive activities or in obtaining passive income in the future. Thus, private investment and consumer spending can be seen as antagonists.

It is known that many rich people are distinguished by a high level of consumer spending, and often irrational. A similar situation can be with regard to government spending. For example, some gas projects of the Russian "Gazprom" may turn out to be unprofitable in the future. The current economic crisis in Russia is largely due to the country's excessive and often ill-conceived government consumer spending.

Dynamics of the cost structure in historicalera

In ancient times, when subsistence farming dominated, consumer spending was dominated by inexpensive food and basic commodities. Delicious food could afford only the richest. High consumer spending on products had people close to the ruling elite. They also had high spending on non-food items. Since ancient times, people have had a passion for precious stones, jewelry, and fur products were also valued in Russia.

With the transition to capitalist relations, the range of consumer spending has increased. Increasingly important were spending on various services. The service industry is considered developed in the modern Western world. The cost of the consumer basket has also increased over time.

Consumer spending and the environment

Rising consumption and related consumer spending is putting pressure on the environment. At the same time, the total consumer spending of the population, which is defined as the product of average per capita consumption by the number of inhabitants of a particular country, is of the greatest importance. The world population continues to grow. At the same time, the level of people's well-being, that is, the costs per person, also increases. This situation leads to growing pollution of various environments, to an increase in the greenhouse effect, mass deforestation and plowing of land, and other negative consequences.

If we do not limit the number of people and total consumption, then soon this can lead to catastrophic environmentalconsequences. Now excessive consumption is the No. 1 threat to all of humanity, which is being ignored not only in developing countries, but also in developed countries. A vivid example of this is the pressure of the EU, and in particular the European Commission, on the Ukrainian authorities in order to remove restrictions on the export of Ukrainian timber. Thus, the actions of the European Commission, which is considered one of the main fighters for the environment in the world, can lead to an environmental disaster on a regional scale.

Thus, consumer spending is all our current purchases (including purchases of services).