Has it ever occurred to you that in the moment when you purchase, for example, gasoline or grocery, you are in fact paying the workers who made it?
Their employee comes as a connection between you – buying someone’s product – and a paycheck of someone.
By the most common definition, consumer spending or consumption refers to the amount of money individuals and families spend on goods and services. The total amount of money is spent on everyday’s life needs, so called nondurables, such as food, gasoline, medications, and clothing. The second share of money goes to durables, like washing machines, computers, and similar lasting possessions. The third share goes to services, where healthcare, financial services and real estate count for the most. The money we are talking about here is disposable income, which is the average individual’s income minus mandatory taxes. This is so-called induced consumption and it is affected by average income.
Consumer spending is considered to be one of the most important, if not the most important, driving force of today’s economy determinating short-term demands in an economy. Namely, consumer spending is measured monthly, often compared with the previous month or the same month in the previous year, in order to analyze economic trends and fluctuations. Total consumption dictates expectation from a market. Consumer spending shapes demand certain goods or services, pushing some companies to keep working or to work harder and provide sufficient amount of demanded product. This indirectly keeps companies profitable and allows them to hire more people.
Consumer spending is determined by few more things, like income per capita and income inequality (families with the lover average income have to spend more in order to reach living wage). The potential expectation of inflation can influence consumption, too. When economic trends indicate possible inflation, people tend to spend more money now, in attempt to avoid an upcoming price increase. Consumption is, also, always limited by total debts family has, including credit cards and various forms of loans.
Either way, the fact is that modern economy depends on consumer spending and when the governments tend to boost economy, they try to increase total consumer spending. This can be done in many ways, from intimidating marketing, to tax cuts or giving out certain amounts of money. Planned in a long run, this should increase average incomes of individuals and families, thus causing increased consumption and consequentially pushing companies and finally leading to more hired workers.
If this doesn’t happen, economy is heading for recession and a country is left with no other source of money but exports or loans.
Theoretically speaking, if all consumers, meaning – all of us stop spending a share of our incomes and simply put it aside, pulling that money out of economic flow, the whole economy system would suffer tough turbulences and damages. This leaves us with a simple dilemma many people keep wondering: is an average consumer really obligated to increase its spending in order to keep pushing and boosting whole economy? Which model of living is better for you personally and for the wider picture: the one where you consciously spend a share of your income you could’ve put aside, in order to support the system or the one where you act sort of selfish and step out of the system as much as you can?
These are just some of the questions and troubling checkpoints in this matter. If you want to know more, see your position in the economic system and the interaction between these two, explore the pages of this blog and read all the information and explanation you need on the matter.