Household Consumption Expenditure

Household Consumption Expenditure: History

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Household consumption expenditure is an important measure of economic activity as it reflects the spending behavior of households and their purchasing power. The measurement of household consumption expenditure is critical for analyzing economic growth, inflation, and overall economic performance. In order to create budgets and financial plans, it is necessary to know and understand the relationship between the size of households in terms of the number of members, the number of children, and their consumption needs.

household size
household consumption expenditure

1. Introduction

Household consumption expenditure reflects the behavior of households and their purchasing power and represents one of the important measures of economic activity. They actually express the amount of money spent by households on goods and services, whether long-term or short-term consumption, on housing, and on public services. Measuring household consumption expenditure is important for the analysis of economic growth, inflation, and overall economic performance.

Household consumption expenditure is a significant part of the family budget. Understanding the relationship between the number of children in the household and their consumption needs can help with budgeting and financial planning. The relationship between household consumption expenditure and the number of children can provide insight into the economic well-being of society. Governments use this information to formulate policies relating to taxation, social security, and education spending in general economic policy. Knowing the consumption behavior of households with different numbers of children is also interesting from the point of view of marketing and consumer strategies of companies. In short, this knowledge is important for financial planning, economic policymaking, and consumer and marketing strategies.

From an economic perspective, when households spend more money on goods and services, it stimulates demand, leading to increased output and employment. Understanding household consumption, its structure, and the dependence on household size provides insight into consumer behavior and preferences, which is important from the point of view of the marketing behavior of companies. Businesses can use this information to develop effective marketing strategies, improve product design, and better target consumers. For example, if households spend more money on luxury goods and services, businesses can focus on developing superior products and services to meet this demand.

From the government’s perspective, household consumption expenditure is important for a variety of reasons. It can be used to assess the overall health of the economy, track inflation, and inform monetary and fiscal policy decisions. For example, if household consumption expenditures are growing rapidly and inflation is occurring, the government will focus on adjusting interest rates, which in turn leads to a slowdown in economic growth. Alternatively, if household consumption spending is weak, the government can implement fiscal stimulus policies to increase demand and encourage economic growth. These facts can be analyzed and modeled. Researchers will use an analysis of variance to investigate the relationship between household size and consumer spending. Modeling is based on regression analysis. The results analyze the correlations and test the hypothesis of significance between household size and consumption expenditures.

2. Theoretical Background

Modern research studies focusing on consumption expenditure are based on the work of Enger (1985) focusing on the relationship between food expenditure and income. Enger (1985) pointed out the functional dependence of the size of consumer expenditure on food, income, and family size. Jacobson et al. (2010) point to the relationships between wealth, income, and lifestyle in relation to household size and state that the larger the household, the better off the people in the household are on a per capita basis. Subsequently, Logan (2011) points to the existence of household economies of scale.

Other authors pay attention to the relationship between food expenditure and household well-being (Donkoh et al. 2014; Umeh and Asogwa 2012). In the article, Donkoh et al. (2014) state that food expenditure accounted for 40% of total expenditure in households, while the imputed value of self-produced food consumed by households accounts for another 10.5%. In their study, Umeh and Asogwa (2012) point to an indirect relationship between household income and the share of food expenditure and a direct relationship with the share of non-food expenditure, which includes especially housing, clothing, education, and health expenses.

Many researchers focus on food expenditures individually in relation to various characteristics of households and the economic environment (Banks et al. 1997; Chai and Moneta 2010; Leser 1963; Working 1943; Huang and Chen 2022).

Still, as the results show, food expenses are strongly dependent on other household expenditure; therefore, it is necessary to look at expenditure as a whole and analyze the relationship between individual types of household expenditure.

In studies from the last decade, other characteristics are more often taken into account when examining household consumption expenditures:

-: the size and composition of households (Mulamba 2022) as there is no consensus in empirical studies on the rate of household expenditure on food or on the normalization procedure; however, in connection with the works of Enger (1985), it is important to normalize information and use the share of expenditure on food for testing;
-: unitary models in which household consumption behavior is considered representative or a summary of all household members (Attanasio and Lechene 2014; Belete et al. 1999; Chai and Moneta 2010; De Vreyer et al. 2020). These models do not take into account heterogeneity in households or they do not cover the influence of household members on behavioral patterns and household consumption.

The issue of different household composition was addressed by Jayasinghe and Smith (2021), who pointed out differences in the consumption behavior of different types of households according to size and gender representation.

The micro-studies of Murray (1964) and Browning and Crossley (2001) point to some household reactions to changes in their own economic situation, which probably do not affect the level of expected lifetime income and consequently the share of individual types of consumption expenditure. Similarly, Ludvigson (2004) and Su et al. (2023a) state that income growth cannot be simply linked to consumer confidence or the structure of consumer spending.

Pitas and Zou (2023), Zhang (2023), Su et al. (2023b), and Anastasiou et al. (2023) emphasize the need to continue working on theoretical and empirical research on the relationships between household attitudes, household expenditures, their structure, and other economic variables or consumer confidence, where more complex and possibly non-linear interactions probably exist.

All these factors mentioned above constitute the impetus to research the relationship between households’ mean consumption expenditure and the number of children, in other words, the statistical significance between the consumption expenditure and the households’ size measured by number of children (Binder 2020; Bui et al. 2023; Easaw and Ghoshray 2007). Kandil (2020) points to a significant statistical impact of household size and expenditure on all food groups.

References

Enger, Ernst. 1985. Lebenskoten Belgischer Arbeiter-Familien Fruher and jetz. Statistical Institute Bulletin 9: 1–74.
Jacobson, David, Petroula M. Mavrikiou, and Christos Minas. 2010. Household size, income and expenditure on food: The case of Cyprus. The Journal of Socio-Economics 39: 319–28.
Logan, Trevon D. 2011. Economies of Scale in the Household: Puzzles and Patterns from the American Past. Economic Inquiry 49: 1008–28.
Donkoh, Samuel A., Hamdiyah Alhassan, and Paul K. Nkegbe. 2014. Food expenditure and household welfare in Ghana. African Journal of Food Science 8: 164–75.
Umeh, Joseph C., and Benjamin C. Asogwa. 2012. Determinants of Farm Household Food Expenditure: Implications for Food Security in Rural Nigeria. Paper presented at International Conference on Ecology, Agriculture and Chemical Engineering, Phuket, Thailand, December 18–19.
Banks, James, Richard Blundell, and Arthur Lewbel. 1997. Quadratic Engel Curves and Consumer Demand. The Review of Economics and Statistics 79: 527–39.
Chai, Andreas, and Alessio Moneta. 2010. Retrospectives: Engel Curves. Journal of Economic Perspectives 24: 225–40.
Leser, Conrad Emanuel Victor. 1963. Forms of Engel Functions. Econometrica 31: 694–703.
Working, Holbrook. 1943. Statistical Laws of Family Expenditure. Journal of the American Statistical Association 38: 43–56.
Huang, Yanyan, and Fuzhong Chen. 2022. The Impact of Household Debt on Food Expenditure and Its Mechanism in Urban China. Journal of Family and Economic Issues 43: 466–75.
Mulamba, Kabeya Clement. 2022. Relationship between households’ share of food expenditure and income across South African districts: A multilevel regression analysis. Humanities and Social Sciences Communications 9: 428.
Attanasio, Orazio P., and Valérie Lechene. 2014. Efficient Responses to Targeted Cash Transfers. Journal of Political Economy 122: 178–222.
Belete, Abenet, Chris O. Igodan, C M’Marete, and Wim van Averbeke. 1999. Analysis Of Rural Household Consumption Expenditure In South Africa: The Case Of Food Plot Holders In Tyefu Irrigation Scheme In The Eastern Cape Province/Analise Van Verbruiksbesteding Van Landelike Huishoudings In Suid-Afrika: ’N Gevallestudie Van Kleinboere In Tyefu Besproeiingskema In Die Ooskaap Provinsie. Agrekon 38: 194–203.
De Vreyer, Philippe, Sylvie Lambert, and Martin Ravallion. 2020. Unpacking Household Engel Curves. Cambridge, MA: National Bureau of Economic Research.
Jayasinghe, Maneka, and Christine Smith. 2021. Poverty Implications of Household Headship and Food Consumption Economies of Scales: A Case Study from Sri Lanka. Social Indicators Research 155: 157–85.
Murray, Alan P. 1964. Wage-Withholding And State Income Taxes. National Tax Journal 17: 403–17.
Browning, Martin, and Thomas F. Crossley. 2001. The Life-Cycle Model of Consumption and Saving. Journal of Economic Perspectives 15: 3–22.
Ludvigson, Sydney C. 2004. Consumer Confidence and Consumer Spending. Journal of Economic Perspectives 18: 29–50.
Su, Chi Wie, Fangying Liu, Meng Qin, and Tsangyao Chnag. 2023a. Is a consumer loan a catalyst for confidence? Economic Research-Ekonomska Istraživanja 36: 2142260.
Pitas, Nick, and Sharon Zou. 2023. Consumer Confidence and Recreation Behavior: Willingness to Buy and Attitudes toward a Proposed Recreation User Fee Increase. In Society & Natural Resources. Online: Taylor & Francis, pp. 1–16.
Zhang, Zihan. 2023. Check and Balance Overspending in Average American Household Consumption. Highlights in Business, Economics and Management 7: 1–7.
Su, Chi Wei, Muhammad Umar, and Tsangyao Chang. 2023b. How consumer confidence is reshaping the outbound tourism expenditure in China? A lesson for strategy makers! Economic Research-Ekonomska Istraživanja 36: 2106266.
Anastasiou, Dimitris, Zied Ftiti, Waël Louhichi, and Dimitris Tsouknidis. 2023. Household deposits and consumer sentiment expectations: Evidence from Eurozone. Journal of International Money and Finance 131: 102775.
Binder, Carola. 2020. Coronavirus Fears and Macroeconomic Expectations. The Review of Economics and Statistics 102: 721–30.
Bui, Dzung, Lena Dräger, Bernd Hayo, and Giang Nghiem. 2023. Macroeconomic expectations and consumer sentiment during the COVID-19 pandemic: The role of others’ beliefs. European Journal of Political Economy 77: 102295.
Easaw, Joshy Z., and Atanu Ghoshray. 2007. Confidence or competence: Do presidencies matter for households’ subjective preferences? European Journal of Political Economy 23: 1025–37.
Kandil, Siham. 2020. Food Expenditure Patterns In Rural And Urban Areas In Egypt (In Arabic). Journal of Productivity and Development 25: 195–212.

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