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INFLUENCES ON SAVING, SPENDING & BORROWING (SPENDING (Income (The main…
INFLUENCES ON SAVING, SPENDING & BORROWING
SPENDING
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INFLUENCES
Main influence: Disposable income. As income rises, people tend to spend more in total, but less as a percentage of their income.
Wealth:
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Wealth can be cashed in, for example withdrawing money from a bank or selling a car then can be spent.
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Wealth affects confidence, eg: The value of people's house rises will cause them to feel richer and as a result are likely to spend more.
Confidence
If people feel more optimistic about their future career and income, they are likely to spend more.
If they feel more pessimistic, they will often spend less.
Rate of interest rising: This will make borrowing more expensive which will then encourage saving and reduce the amount spent by those who have borrowed in the past.
Those who have saved more will gain more income and they MAY spend more. However, the net percentage that they spend comparative to the net percentage of the income that decreases from the borrower is LESS. This is because they saver, to start with, tends to prefer to save rather than spend.
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SPENDING
Income
The main influence is disposable income. As disposable income rises, the total amount saved and the proportion saved increases.
Wealth
The wealthier people are, the easier it will be to save because they will still have a lot of income even after spending.
Rate of interest
A rise in the rate of interest may cause people to save less. This is because the rate of interest may reduce some target saving as people can now reach their target amounts by saving less.
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Age
The young and old tend to save less than middle-aged people. The young save more in order to ensure they have a secure future whilst the old depend on savings to ensure a reasonable living standard during retirement.
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BORROWING
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Confidence
The more confident people are of their earnings in the future, the more they may finance their extra expenses to borrowing with an expectation that their higher income will allow them to repay their loans.
Social attitudes
Some countries and some groups within countries are more concerned about the risks of debt by borrowing, than others.