FINANCES OF HOUSEHOLDS (PERSONAL FINANCE)
FINANCES OF HOUSEHOLDS AS A COMPONENT OF THE FINANCIAL SYSTEM OF THE STATE
As a result of studying this chapter, the student must:
• the basic concepts associated with the content and principles of the formation of household finance;
• The structure of household finance;
• The main sources of the formation of household finance;
• forms of income and expenditure of households;
• the socio-economic nature and functions of household finance;
be able to
• classify types and types of sources of household finance formation;
• determine the content and structure of income and expenditure of household finances;
• a conceptual apparatus in the field of household finance;
• skills in working with the definition of the effectiveness of the formation of the structure of income and expenditure of household finances.
By household is understood a group of persons who jointly make economic decisions. In the system of economic relations, households are extremely important, since they are owners of factors of production that are privately owned. In the economic system, households play the following role:
• act in the market as buyers of goods and services produced by enterprises;
• provide the same enterprises with production factors;
• They save part of the aggregate income generated in the economy, acquiring real and financial assets.
Economic relations arising within the household are manifested at all levels of management. In this case, the most stable form of reflection of economic relations of households are financial relations that have an objective nature and a specific social purpose. Under financial relations understand, as a rule, monetary relations. Household management in the current economic conditions is impossible without the use of money, which form the real basis for the emergence of financial relations at the household level. Therefore, a household can not be outside financial relations, since it constantly enters into such relations that arise both within the household and with market entities external to the household.
The area of origin of household finance should be considered the second stage of the process of reproduction, on which the value of the social product produced is distributed. Members of the household are the owners of the labor force - one of the factors in the production process, therefore, they are entitled to receive part of the value of the created product. It should be noted that households participate not only in the primary distribution of the national income but also in the process of its secondary distribution, when the state redistributes income among various households through a system of direct taxes, the pension system, the system of social transfers (for example, utilities).
Therefore, household finances - is a combination of monetary relations about the creation and use of funds of funds, which enter into households and their individual participants in the process of their social and economic activities.
Household Finance Structure
From the point of view of the material composition, household finances are a collection of trust funds created by them, in other words - this is the total amount of financial resources that the household has. The structure of household financial resources includes:
• cash intended for current expenses, including expenses for purchasing food, non-food items used for a relatively short period of time (shoes, clothes, etc.), fees for periodically consumed services, etc. ;
• cash intended for capital expenditures;
• money for the purchase of non-food items used for quite long periods of time (furniture, housing, vehicles, etc.), payment for services consumed by household participants (education, medical operation, tour)
• cash savings;
• funds invested in movable and immovable property.
As a rule, a household starts its economic activity not on an "empty spot", i.e. initially possesses some previously accumulated wealth, which mainly passes to him by inheritance, and sometimes as a result of donation. This wealth can be presented in various forms, primarily in the form of real estate, cash, and in some cases - securities. In addition to the initial resources, household finance sources are:
a) household income;
b) consumer credit;
c) social transfers;
d) other resources (for example, it can be lottery winnings, income from personal loans to other individuals).
To domestic household finance can relate the relationship arising between the hundred participants on the formation of family cash funds for different purposes: the insurance reserve to maintain the level of current consumption, a cash reserve for raising the level of capital expenditures, a money fund for the purpose of its further investment, etc.
A household can enter into the following financial relationships:
• with other households - about the formation and use of joint monetary funds (they do not include the reciprocal exchange relationship, in which households can also participate);
• with enterprises operating in different areas of material production or production of services and acting as employers in relation to household participants - about the distribution of part of GDP produced in its value form;
• with commercial banks - about attracting consumer loans, their repayment; but about the placement of temporarily free cash on bank accounts;
• with insurance companies - on the formation and use of various types of insurance funds;
• with the state - on the formation and use of budgetary and extra-budgetary funds.
Such relationships constitute the socio-economic content of the "household finance" category.
Decisions regarding the use of resources are related to the implementation of expenditures by households. All kinds of economic decisions of the household are closely interrelated. So, the accumulation depends on when a person expects to retire. The choice of the asset portfolio, in turn, depends on how the household determines priorities in current consumption and savings, as well as individual preferences. Some households may prefer to consume most of the current income, others, on the contrary, save. As in the organization of business, the structure of the portfolio of assets largely depends on the propensity to take risks. If household members as investors have a high risk appetite, then it may be decided that a significant portion of the portfolio should be made up of securities. This risk aversion is not the same in different countries. For example, individuals from the United States make a significant part of their income in securities, and in Germany the attitude to risk is more conservative, so deposits in banks are a priority.
Economic and financial decisions in the household depend on many factors, among which the main are:
• current and future goals;
• the relationship between members of the household;
• level of household income;
• preference and risk appetite for household members;
• The external environment in which the household operates.
The external environment has a very big impact on decisions in the household. The most important factors of the external environment for them - the legislative regulation of income and expenditure, especially in employment, income taxation, social benefits; Relations in the team in which the members of the household work; participation of the latter in public and political organizations; relations between the households themselves.
When it comes to households as structural elements of social reproduction, a number of questions arise that concern both their internal organization (the role of individual members, their activities, management of resources) and relations with the environment: society as a whole, its institutions (public, political, economic), as well as with other households. The types of household activities are:
• paid work in the public and private sectors of the economy;
• unpaid work within the household;
• work performed by members of other households or for them (they can both be rewarded and carried out free of charge).
In any case, the peculiarity of the household, in contrast to business organizations, is a large proportion of unpaid work, the fulfillment of which is necessary to maintain the vital functions of its members (housekeeping, raising children, etc.). The ratio of paid and unpaid works varies historically in favor of the former due to the rationalization and mechanization of domestic work and also depends on the social composition of the household. For example, in families with a large number of children, the proportion of unpaid work is generally higher. The higher the share of unpaid work in the household, the higher must be the level of income for maintaining normal living. The level and proportion of unpaid work in households are the most important indicators of the economic development of society.
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