S8

IGCSE®/O Level Economics

3.4 Spending, saving and

borrowing

© Brian Titley 2012: this may be reproduced for class use solely for the purchaser’s institute
 Consumption

People will divide their disposable income between spending and saving

The more disposable income people have the greater their

potential consumer expenditure
People will consume those goods and services that provide them
with the most satisfaction or utility

© Brian Titley 2012: this may be reproduced for class use solely for the purchaser’s institute
 What determines how much we spend?

DISPOSABLE
INCOME

Share
certificate

WEALTH

What does the future hold?

Lower inflation?
Better job prospects?
SAVINGS More income?

BOND
8% pa INTEREST CONSUMER
RATES CONFIDENCE
3
© Brian Titley 2012: this may be reproduced for class use solely for the purchaser’s institute
 Expenditure patterns and trends

There is a close relationship between real

income and consumer spending
As real incomes have risen in many countries,
so too has total consumer spending

Other drivers of change in consumer spending

patterns include these factors:
• people are living longer
• they have more leisure time
• they are increasingly health conscious
• there is increasing concern for the
environment
• more females have joined the labour force
• new technologies = new wants

© Brian Titley 2012: this may be reproduced for class use solely for the purchaser’s institute
 Why do our spending patterns differ?

Our individual spending (and saving) patterns depend on our preferences,

economic circumstances and characteristics

INCOME SEX WEALTH

LIFESTYLE
AGE

FAMILY
CULTURE CIRCUMSTANCES
TASTES

© Brian Titley 2012: this may be reproduced for class use solely for the purchaser’s institute
 Saving
US savings ratio: personal savings as a percentage of disposable income
Saving delays
consumer spending to
a later date

Withdrawing savings
to spend is dissaving
Source: US Bureau of Economic Analysis

© Brian Titley 2012: this may be reproduced for class use solely for the purchaser’s institute
 Why do we save?

For future spending

SAVINGS
BOND
5% pa To earn income from interest

In case our economic circumstances change

PENSION
Because of increased
SCHEME
Share
opportunities to save certificates
Fixed-interest
New tax-free
saving bonds
savings
account
© Brian Titley 2012: this may be reproduced for class use solely for the purchaser’s institute
 Borrowing
Consumers borrow money to finance additional
expenditure
LOAN
AGREEMENT
Amount:
$4,000

Repayment
period: 5 years
They can then make loan repayments over time from
Interest rate:
8% pa their future earnings
Personal debt is the total stock of money borrowed
and yet to be repaid by a person or a household

© Brian Titley 2012: this may be reproduced for class use solely for the purchaser’s institute
 What determines how much we borrow?

WEALTH

CONSUMER CONFIDENCE

What does the future hold?

Higher prices?
More unemployment?
Lower incomes?

AVAILABILITY OF CREDIT

© Brian Titley 2012: this may be reproduced for class use solely for the purchaser’s institute