Family consumption and wealth management
The family is the most basic and the smallest unit in the social structure with the division of single-parent families and large extended families. In China, the history and social system that can be studied are changeable in the history of five thousand years. However, it never changes that the general population mainly participates in social activities with the family as a unit, and families are formed by blood ties and the kinship system. A village is made up of a number of families; a town is formed by a number of villages; a county by a number of towns; a region or city or province by a number of counties (districts); and a country is the superstructure and systematic social structure of a number of provinces.
In the stage of underdeveloped society with commodity production and exchange of capital, the form of the production consumption and living consumption was mainly enough for households. In the slave society and feudal society, the economic production means was mainly the family workshop. Until the birth of capitalist society, family enterprises still existed, while the incomes of social living consumption funds were also reflected in personal and family income. The expenditure of human living consumption was mainly in the family (all members) living consumption. Consumption was divided into two parts: household living consumption, the major part, and living consumption of social or collective groups and organizations whose expenses are paid by the social group.
Living consumption comprises material consumption and spiritual cultural consumption. The household is the minimum and the most basic cell of the social structure as well as an economic cell of micro living consumption.
We are going to study the formation, use, and financing management of consumption funds, the structure of living consumption, and the pattern of living consumption from the perspective of the household, the economic cell of micro-living consumption. The relationship between living consumption fund revenue created by production consumption in the primary, secondary, and tertiary industry, and the living consumption fund revenue created by investment in the production consumption of the social infrastructure is the relationship of internal connection among the three important consumptions. It is a law that the three consumptions affect the market, finance, and economy created by social development, which has both positive and negative aspects, namely the natural (free) law of the market economy with state intervention. It is the natural law that state intervention acts on the market economy.
Consumption and management are studied from the perspective of micro-economic cells, and personal and family living consumption. It is not only an extremely complex and dynamic process but also very specific. It is the process in which micro movements affect the overall situation, which is more conducive to understanding how the economy develops in an orderly and systematic way and is conducive to controlling the development and management of macro human consumption.
Section 1 Family living consumption fund income and wealth management
Household income and living consumption include personal income consumption and living consumption of all family members. Here the individual income and consumption will not be listed for convenience. All the personal consumption before marriage is included in the household living consumption.
The household living consumption capacity is determined by family income, and the way of living consumption depends on people’s consumption consciousness, which decides consumption behaviors. I have discussed ‘consumption practices and consumption consciousness’. Since household living consumption power is decided by household income, we first study the source of household income in various historical stages and then study it as a type of living consumption.
Underdeveloped society with commodity production and exchange of capital
Slave and feudal societies are the stages of an underdeveloped society with commodity production and exchange of capital. The characteristics are as follows. First is barter exchange. Second is the exchange for goods with a certain substance that has an equal value of currency (cattle, copper, iron, gold, silver). Barter exchange and the exchange of gold or silver, including notes and drafts on behalf of gold and silver, and so on, are exchanges of surplus products based on self-sufficiency. At this time, there were family workshops with commodity production, which had entered the stage of commodity production and exchange of capital, which is mainly represented after the mid-term feudal society. But the overall economic form of society was still the self-sufficient form, so it is called underdeveloped society with commodity production and exchange of capital.
Until the start of capitalist society, the form of economic base and economic activities was mainly commodity production and exchange with capital currency. In a capitalist society, the living consumption, social consumption, and research and production consumption takes the form of capital money – currency rules the whole process of economic activities. There remain minor self-sufficient economic sectors in remote and rural areas. And even for self-sufficient families, it is impossible to avoid the fact that surplus products enter the goods exchange in the form of currency. Here we should note that in a capitalist society currency has ruled the entire process of economic activities on behalf of commodities. The currency can be exchanged for any goods. The amount of money represents the value of certain goods, but it has limitations. For example, money can buy food and meat for eating, but it cannot be eaten as food. Hungry people need to eat. Even if they have a lot of money, they could starve to death without buying food. Comparing money with edible food such as grain and meat, food is the most valuable asset.
During the long historical stages of the slave society and feudal society, because productivity was very backward, living consumption and food consumption were the primary needs for survival. Therefore, a family must first guarantee their own consumption with the consumption materials they themselves created. The economic form is the major social economic form. The sources of household consumption are discussed below:
1. All family members who can work labor to create consumption wealth as the source of living consumption. After spending what is necessary on food other money enters the market for barter exchange for other products and life supplies to meet the needs of household living consumption and reproduction.
2. The business in this period is the family workshop. The source of consumption funds is from the products they themselves produced. The products were exchanged with other means of production and reproduced in the market. Meanwhile, they exchanged their own goods with family agricultural commodities to trade for their own living consumption goods to meet their consumption needs. Their efficient management of income and expenses made the workshop business expand. In this long history of human society, people at that time created the national spiritual culture that is now called the primitive spiritual culture, which met the consumption needs of material and spiritual cultures of various nations and countries.
3. In the slave and feudal societies, there was no social security. Although in very bad years the country sometimes provided relief food and other materials (only a very few countries granted relief funds), it could not solve the problem.
4. In slave and feudal societies slave holders and landlords relied on the living consumption fund, land, tools, pasture, and fishing boats that they occupied to exploit peasants, herders, and fishermen of their revenue for consumption. The state and various officials also acquired consumption fund revenue from many laborers, and the state also collected commercial duties from landlords, pasture owners, and fishing masters. The revenue from opening industrial plants and commercial enterprises also became their consumption revenue fund and social consumption revenue fund, so they could afford the living consumption of enjoying the physical materials and spiritual cultures.
In this long historical period, because of social systems, disease, and weather, and for other reasons, many slaves and farmers lost their living resources, such as land and labor tools. They were forced to work for landlords, be slaves to the nobility, or rent lands from landlords to till. Such servants or slaves would unconditionally surrender production to the landlord, and have to pay a poll tax. There was very little income, so these people led a life of starvation or semi-starvation. Traders got consumption funds from profits earned from business trading, but they also had to pay the state poll tax. Therefore, there were few profits left for them to feed family members, so struggled on the death line.
Thus, in slave and feudal societies, every cent of ordinary laborers was carefully calculated and budgeted by them. Family members who would work created income to feed the younger generation and the older generation who could not work, forming the law of revenue and expenditure from generation to generation. Thus people raise children to look after them in later life.
The source of household funds and wealth management under a social system with relatively developed commodity production and exchange of capital
These are the sources of household funds and wealth management:
1. Families with general salary income. Consumption funds of these families relied mainly on wages (including bonuses and benefits), supplemented by other incomes, such as revenue from trading stocks, bonds, funds, lottery, amateur part-time work income, dividend income, investment income real estate, retirement pension, and medical insurance payments and other investment incomes. This situation is prevalent in families with general wages.
2. Families with fat salary. The main source of such household consumption funds is from high wages. Such a situation is more common among national civil servants and business managers.
3. Families with small-scale business. A part of the profits from investment in a business is used for family living consumption; the other part is applied to the families with further expansion of investment. This situation is prevalent in the small-scale family business.
4. Families with return on investment and salary revenue. These families have large-scale enterprises. In addition to business profits, they pay wages to employees.
5. Some families in rural areas. In rural areas, some agricultural products are not fully commercialized, and there are still a small number of families that produce for their own consumption with the remaining products entering into the market. In economically backward areas, income and expenditure is still mainly self-sufficient. Remaining products entering into the market for commodity exchange comprise a small percentage. This situation is more common in rural households. They are not only consumers of products they themselves produce, but also sellers.
The above five kinds of families with different sources of household consumption funds and with different ways of living consumption also have different means to manage consumption funds.
The first kind of family maintains household living consumption by relying on wages. The revenue management of this kind of household is divided into two categories; the first involves higher income families. Some families divide their incomes into several parts for home financial management. They first pay for social security or purchase a personal insurance policy, and then they maintain the daily living consumption. They also keep certain reserves for schooling their children, set aside some money to pay for their parents’ needs in case of severe illness, and some money to supplement their own living consumption and healthcare needs when they get old. Some families choose to keep, money in their saving accounts to earn bank interest payments; some families choose to invest in small business, real estate, stocks, funds, lotteries, and so on, in order to obtain larger gains. The other situation involves lower income families. They can only arrange for necessary living consumption. In addition to labor insurance, individuals are incapable of taking the extra money to make other financial arrangements. After the necessary living consumption is arranged, in case of special financial difficulty, they have to ask relatives and friends, national subsidies, or social assistance for help.
Families with large salaries usually draw part of their money for financing, such as stock investment (or investment by equity participation) or investment in funds, or deposits, and investment in real estate. They acquire more living consumption funds in various ways. While increasing their living consumption level and living standard, they also subsidize their aged parents.
The third and fourth kinds of families mainly acquire income by opening and running enterprises, and have sufficient living consumption funds and high levels of living consumption. In addition to bonuses, they usually have salary and capital investment income, such as profit and interest payments from various funds, stocks, deposits in saving accounts, and so on. Their income is used for enjoying the living consumption and reproduction consumption to expand financial investments and to enhance enterprise operation.
As the system of rural retirement pension has not been fully established, the source of the fifth kind of household living consumption funds will be guaranteed by their own financing. Part of the consumption fund relies on state subsidies, such as the yearly poverty alleviation funds in China to help poor farmers, the universal nine-year free compulsory education, the medical subsidy and security from the state for each farmer, subsidies to poor households and students, relief funds, freedom from agricultural tax and subsidies on grains, and so on, which are sources of living consumption funds. Some families have good benefits from agricultural and sideline products (such as pigs, chickens, and agricultural product processing). They have sufficient living consumption funds and experience in the financial management of consumption funds, so can generate income to increase their consumption funds.
Tables 16.1 to 16.3 show hypothetical charts of sources of household consumption funds and financial management.
Table 17.3
Hypothetical use of household living consumption funds in financing management five years later (Yuan)
Analysis of household living consumption after five years
Now we analyse the household living consumption funds, income, and financing management of the six assumed families after five years.
A family with a higher living consumption income has more reasonable arrangements for living consumption. After subtracting 72,000 Yuan for living consumption from the annual income of 120,000 Yuan, 48,000 Yuan remains. The remaining is deposited in the bank with the interests of 7,200 Yuan earned after five years. The total consumption fund is 247,200 Yuan in five years. After five years, its surplus is 7,200 Yuan with the housing consumption of 200,000 Yuan, and domestic appliances of 40,000 Yuan. It is a prudent saving type of family good at careful planning and arranging expenditure based on income according to regular standards (never get involved in risky investment).
Family B with an annual income 72,000 Yuan, and living consumption expenditure of 48,000 Yuan per year has a balance of 24,000 Yuan per year, and is also good at arranging income and households expenditure. It is more adventurous family than Family A, but it leaves adequate room for security while making adventures. It deposits 10,000 Yuan per year for interest from the bank and takes 14,000 Yuan for risk investment with investment earnings of 25,000 Yuan. The total income of 146,500 Yuan with 140,000 Yuan used for housing investment consumption leaves a balance of 6,500 Yuan.
C family spends money but is good at investment. With the same annual income as family B, it has living consumption of 48,000 Yuan with a yearly balance of 24,000 Yuan that is involved in all-risk investments. It is lucky enough to get a better income of 50,000 Yuan. The cumulative revenue in five years is 170,000 Yuan. Five years later, it has a balance of 10,000Yuan with 100,000 Yuan paid for vehicles, 10,000 Yuan for tourism, and 50,000 Yuan for pension reserves. The family is careful to spend risk income with 50,000 Yuan remaining for the old age, which is very sensible.
Family D is the family with the least annual income and is also the most economical and conservative household.
Family E is the family with sound consumption. Though it has the same family income as families B and C, the income of the consumption funds varies greatly owing to the family’s inability to manage their finances.
Family F has as much income as family A is a purely enjoying consumption household. There is no balance, with all the income of 120,000 Yuan in the first year paid out. From the second to the fifth year, its total is 90,000 Yuan with cumulative capital 80,000 Yuan and financing income of 10,000 Yuan. The family’s consumption of facilities and transport is 30,000 Yuan, that of tourism is 10,000 Yuan, and that of pension investment is only 20,000 Yuan, which proves that the family has poor financing capacity.
These are six kinds of hypotheses representing possible families. From the household financing and consumption situations of these families, it can be seen that some families are good at spending their money wisely; others are not good at financial management and they arrange living consumption by relying on accumulated funds. Some are relatively good at financial management and arrangements of living consumption, and some enjoy consumption. Though they have high incomes, their consumption is also very high. According to the law of life cycle consumption and creation of consumption, it is necessary to make reasonable arrangements for family financial management and spending. In other words, in the cycle of creating consumption wealth, individuals need to accumulate certain pension reserves. When there are inadequate national pension funds, a family’s reserves can make up for the inadequacy so as to ensure its consumption needs in later years are met.
Section 2 Family living consumption fund source and its relation with production consumption
After meeting the living consumption of material and spiritual culture for human survival, people begin to pursue enjoying living consumption, which is endless. This is also a process of continuous enhancement, which is accompanied by social progress. However, where are the living consumption funds and enjoyment consumption funds from to meet the needs? Since humans participate in social production with the family as a unit, the consumption needs of the material and spiritual culture are created; meanwhile, the desires of new consumption needs are also created, which also has an effect on consumption. The production consumption process that creates social consumption of material and spiritual culture must also create consumption funds for these products. The revenue and expenditure of consumption funds is determined by the social system and the law of social wealth distribution policy, and is also influenced by elements including production conditions, production capacity, and personal labor value, etc. Hence unfair and inequitable, and even very unfair and inequitable, distribution of consumption fund revenue appears.
During the same period and time, some people are struggling in the death line while some are leading an extremely enjoyable and luxurious life; some people are living in the oppressed and the ruled environment without freedom, whereas some are oppressing and ruling others. Here I mainly study the source and management of household living consumption funds rather than studying and resolving social contradictions. I have discussed the contradiction between living consumption and social class and the method of resolving contradiction elsewhere.
Section 3 Total production consumption creates consumption fund and consumption
Since the overall production consumption and social consumption are dynamic, it is hard to analyze them. Since the hypothetical model is static, it is easier to look into the dynamic internal law.
In the hypothetical model, C is the advanced capital; V is the labor wage; M is the profit tax; and D is total production. Subsidies of financial consumption funds are from profits. In the supply and demand market, it is assumed that the manufacturing investment in farming, forestry, animal husbandry, fishing, light industry, finance, commerce, and transportation is considered to be the total of production and social consumption goods. In fact, it is not all like that. This assumption is made to analyze the supply and demand in the market and study the inherent law of equilibrium in the market economy more clearly.
Assumption 1
Assumption 1 is the basic model. The total output value is one trillion Yuan, and the total capital of production investment in basic industry is 500 billion Yuan; that in farming, forestry, animal husbandry, fishery, and light industries is 400 billion Yuan; and that in finance, commerce, and transportation industries is 100 billion Yuan. It is supposed that labor wages (consumption funds) account for 30% of the total output value, and profits and taxes 20%. A certain amount is taken out of the profit and tax payment to subsidize the living consumption funds of poor people, to reduce investment in reproduction consumption to increase the total social consumption fund, in order to promote consumption to stimulate economic development. The market supply and demand is 500 billion / 395 billion Yuan, with a ratio of 1:1.67.
Assumption 2
The labor wage created by production increases by 45 billion Yuan, up to 345 billion Yuan, and the profits increase to 230 billion Yuan by 30 billion Yuan. 50 billion Yuan is extracted from the fiscal profits and taxes to be subsidies added to the labor wages of 345 billion Yuan, attaining consumption funds of 395 billion Yuan. The balance of market supply and demand is 500 billion / 395 billion Yuan and the ratio is 1:1.27. Here you can see the increase in investment in basic industries increased by 300 billion Yuan for the total social consumption funds (labor wage) while the financial subsidies living consumption funds of 50 billion Yuan make an increase in purchasing power of 80 billion Yuan. Since there is no increase in the total of social consumption, demand exceeds the supply.
Second, third, and fourth years
In the second year, the domestic investment is 250 billion Yuan, of which 180 billion Yuan is accumulated profits and tax over the previous year and other income funds. With the added foreign investment of 100 billion Yuan, the total investment is 350 billion Yuan. The investment in basic industries increases by 100 billion Yuan to 750 billion Yuan; the production investment in farming, forestry, animal husbandry, fishery, and light industries rises by 200 billion Yuan to 600 billion Yuan; that in the financial, commercial, and transportation sectors is up to 150 billion Yuan with an increase of 50 billion Yuan. There is an increase in labor wages (consumption funds) from 105 billion Yuan to 450 billion Yuan. With a 70 billion Yuan rise in profits and tax, profit increases to 300 billion Yuan. Thus, the market supply and demand is 750 billion / 450 billion Yuan and the ratio is 1:1.67 with a balance of market supply and demand.
In the first year, the consumption funds created by the investment in basic industries and fiscal subsidy to consumption funds raise the total purchasing power of society without an increase in total consumer goods, which leads to a shortage of supply in market. However, the investment ratio in the second year is adjusted with 180 billion Yuan in basic industries, 200 billion Yuan in the farming, forestry, animal husbandry, fishery, and light industries, and 50 billion Yuan in financial, commercial, and transportation sectors. In this way, the supply of living consumption increases with the market supply and demand toward balance.
In the third year, there is an increase in domestic investment by 240 billion Yuan and foreign investment by 100 billion Yuan, reaching 340 billion Yuan. 180 billion Yuan is invested in the basic industries, reaching 930 billion Yuan. With 500 billion Yuan invested in farming, forestry, animal husbandry, fishery, and light industry, profit is up to 650 billion Yuan; with 110 billion Yuan invested in financial, commercial and transportation sectors, it rises to 260 billion Yuan; and labor wages increase to 562 billion Yuan by 112 billion Yuan. The profits and taxes rise by 52 billion Yuan to 352 billion Yuan, and the fiscal subsidy consumption fund is worth 60 billion Yuan. Thus, the balance of supply and demand is 910 billion / 622 billion Yuan and the ratio is 1:1.81. There is a relative equilibrium of market supply and demand with mild inflation, which is good market supply and demand.
In the fourth year, there is an increase in domestic investment by 352 billion Yuan and foreign investment by 100 billion Yuan. 100 billion Yuan is invested in the basic industries, reaching 1,030 billion Yuan. With 252 billion Yuan invested in the farming, forestry, animal husbandry, fishery, and light industry, it is up to 902 billion Yuan; with 100 billion Yuan invested in financial, commercial and transportation sectors, it rises to 360 billion Yuan; and labor wages increase to 687.6 billion Yuan by 125.2 billion Yuan. The balance of supply and demand is 1,262 billion / 6,876 billion Yuan and the ratio is 1:1.81 with slight oversupply.
Summary
When there is an equilibrium of supply and demand and the supply exceeds the demand, it is required to increase infrastructure investment, boost investment in the development of basic industries, increase living consumption funds of individuals and households, and stimulate the development of living consumption; when the market is in short supply, it is decreased to reduce investment in the infrastructure and basic industries, increase investment development of consumer goods and industries in financial, commercial, and delivery services, and stimulate the development of living consumption so as to ensure market supply and demand. When demand exceeds supply, a simple tightening is unscientific. Instead, we should combine regulation of currency investment of production capital and the appropriate tightening policy, which is the correct approach of investment.
Seen from the above model, it is assumed there is no increase in the total population of the community, which is impossible but makes it easier to discern and analyze problems. The economic development is affected by social consumption. In the production consumption process, living consumption funds continue to increase with the continual increase in the purchasing power of people’s living consumption and people’s average living standards.
Section 4 Family living consumption is at the core of three important consumptions
The household living consumption is the core of the three important consumptions. Social and production consumption without individual and household living consumption is like a river without water, and nothing exists. The individual and household consumption needs for material and spiritual culture need increasing and such living consumption needs are moving forward without end. This requires the state to guarantee and protect them to ensure fairness and justice, which can create social consumption and individual and household living consumption to make continuous development of material and spiritual culture in both consumptions.
In the process of consuming social material and spiritual civilization, the consumption of productive forces and production relations and research and production consumption are created. In turn, research and production consumption creates individual and household living consumption in the material and spiritual culture; creates material and spiritual culture products for social consumption; and creates consumption patterns and consumption levels. It is now recognized that Engels’ coefficient law measures household living consumption levels and standardized coefficient.
Household living consumption
The structure of personal and household living consumption changes with household revenue (consumption funds) and the development of social consumption productivity, and is influenced by customs and preferences. Consumption consciousness determines consumer behavior. Social consumption structure is also determined by the size of total social wealth used in social consumption and the development and change of the productivity level of the consumption society.
In the sequel of On the Social Science Research (1985), the renowned economist Yu Guangyuan states that a society produces a wide variety of consumer goods that are an important and basic factor in the provisions of social consumption, but this is only a prescription of social consumption. We know that under different social systems with different distributions of consumer goods among members of the community the result of distribution is the consumption of various social groups, namely what kind of goods and services people are consuming and the amount of consumption. Furthermore, social spending can be divided into the consumption of consumer goods disposed by the social public and the individual resident.
For the consumption of consumer goods dominated by the social public, consumers are still individuals. Consumer goods are first allocated to individuals with different consumption ways, which is also a specific provision of social consumption. In addition, according to consumer behaviors, social spending can also be divided into food, clothing, housing, transportation, social activities, and meetings. For consumption purposes, the analysis of the needs of survival and enjoyment or development makes social consumption have specific provisions. These various kinds of prescriptions combine the general rule of social consumption, which can be called social consumption structure. This is the consumption structure of consumer goods of a family’s material and spiritual culture and those of social or public consumption. Social spending serves personal household consumption.
The law of Engels’ coefficient formula
Engels’ coefficient formula is the percentage of residents’ food consumption and expenditure in total consumption expenditure, which decreases with the rise of revenue level. It is named after Ernst Engel who was a German executive officer and statistician in the 19th century. Engel noted that different income groups in Saxony spent a different proportion of income on goods and services, and with an increase in family income, the proportion of food expenditure became lower. This does not suggest that food had a lower status. It is not difficult to understand that with an increase in income and expenditure, though the proportion of food expenditure decreases, the currency for food consumption expenditure increases. The amount of food consumption at a lower level of economic development also increases, the quality of food consumption improves and people’s nutrition levels are accordingly enhanced.
Engels’ coefficient decreases with a rise in the level of revenue so within the growth of various consumptions, the growth of food consumption is relatively slow. The reason is that food consumption is consumption for survival, and when their survival needs are satisfied, people can spend surplus money on enjoying consumer goods. Motorcycles, cars, luxury cars, computers, mobile phones, luxurious housing and decoration, tourism, and home appliances are often high-end consumer products.
Engels’ coefficient standard is that when expenditure on food consumption accounts for more than 60% of the country’s total expenditure, the country or region is economically poor; if expenditure on food is between 60% and 50% the country or region is fairly wealthy; if it is 50–40% the country or region is relatively well off; if it is 40–30% it is well off; if it is 30–20% it is wealthy; and if it is below 20% it is especially wealthy. Engels’ coefficient law is used to analyze personal household living consumption, the living consumption standards of vulnerable groups that are adjusted and alleviated by state, and the development of high-end consumer goods to meet the living consumption of wealthy individuals and households, thus promoting overall economic development.
Financial support, social security, and personal and household living consumption
The income of the group under the poverty line is increased through financial poverty alleviation and social security. It is assumed that in a region in which 40% of the total population is above the poverty line; 20% above the adequate food line; 20% better than well off; 10% wealthy and 10% especially wealthy. It is assumed that 50% of the population in this area has an adequate supply of food, with food consumption in meat and eggs accounting for 10% of food consumption expenditure. Soon there will be a shortage of food and an increase in the price of meat and eggs. Then the consumption investment in meat and eggs should be increased and the production of meat and eggs needs to be developed to ensure the market supply. Meat and egg industries need food as feed, which also affects product prices in the food industry and industries associated with the food industry. The shortage of food consumption can cause an increase in prices. If this happens, the state should regulate the investment ratio, increase investment in food production and consumption, and reduce the infrastructure investment so as to increase the supply of food consumption; meanwhile banks should raise interest rates to attract more residents to increase deposits and minimize the amount of currency in the market.
In this way, demand and supply will be balanced, and it is the same with prices. An improvement in residents’ living standards drives overall economic development. However, the desire of well-off and very well-off residents to develop their personal and household living consumption cannot be driven by increasing the living consumption level of residents above the poverty guideline, and their consumption can only be driven by developing living consumption items for enjoyment – material and spiritual cultural consumption products.
Personal and household living consumption in wealthier households
Food consumption accounts for only 20–30% of the total revenue in wealthier households, and 70–80% of the total revenue is used to meet high-end products such as housing, clothing, cars, home appliances, televisions, mobile phones, computers, tools, and appliances. Spiritual cultural consumption includes enjoying concerts, theatre, dance halls, and nightclubs, high-grade hotels, tobacco, and alcohol, and tourism abroad with children.
Besides the 20–30% of people who are wealthy, enjoying consumption also includes ritual living consumption of national and social groups, and commercial living consumption.
Any product created by productivity of a consumer society, which is transformed from new technology, is considered a high-end enjoyment consumption good. The increase of the need to enjoy consumption drives the development of high technology’s transformation into productivity of the consumption society. The development of the economy with high consumption, high technology research, high taxation, high accumulation, and high speed is driven; economic development in the circular spiral law is also advanced and continuous progress in social civilization and culture is propelled. As this happens the number of poor people gradually decreases or their income rises so they have adequate food and clothing, and the whole nation or region eliminates poverty and becomes prosperous.
However, this sort of development of the economy also reflects the problems and conflicts created by living consumption when there are income discrepancies. In a nation or region, those who spend their money on high-end consumer products waste social wealth, while other people have a poor level of living. Social contradiction is aggravated by such a serious unfair social phenomenon, which is also the fault of enjoyment consumption.
How to adjust and solve the contradictions? The state is responsible for controlling consumption and waste, the establishment of the social wealth distribution policy and tax laws, the redistribution of social wealth, and the improvement of living consumption funds for poor families so as to increase social security and comprehensively improve the lives of people. But there is no absolute justice. Through comprehensive analysis, the state should vigorously develop high and new technology to meet the increasing living consumption of material and spiritual culture. The fundamental purpose of human beings is to advance overall economic and social progress.
Enjoyment consumption and consumption consciousness of individual and household
When the need of consumption for survival is satisfied, people enter the time of well-off personal and household living consumption. Consumption consciousness decides what one consumes and how one consumes. While you may have the spending power, without consumption consciousness, you will not purchase. Although one has the spending power to enjoy high-level concerts, without that consumption consciousness, one is not going to enjoy the natural beauty brought by music. It is the same with the high-end nightclub. However, when you have the consumption consciousness of enjoying high-end cars, one begins to study the functions and advantages and disadvantages of various cars in order to buy one’s favorite car. This is the feeling of spiritual enjoyment. When some people and families have strong consumption consciousness of clothing, they will study what kinds of clothes are the most fashionable, most beautiful or most handsome, and so on. There are those who like eating or playing and visit restaurants, hotels, nightclubs, and other entertainment every day; others are more interested in family housing and renovation, and tourism. Owing to the different preferences of consumption consciousness, individual families with the same income have different consumption structures for disposable income. The living consumption structure also has an influence on the development of production consumption structure. The different preferences of consumption consciousness decide one individual’s consumption structure is behind the development of enjoying living consumption.
The interaction between personal household enjoyment consumption and others
It has been mentioned that consumption consciousness determines the enjoying consumption way and structure. The human is the smallest molecular in society, and the household is the minimum unit of society, and certain connections and interactions exist between individual and individual, individual and family, and family and family. It is assumed that in a unit with 30 employees, 20 families belong to wealthy households, in which ten households buy a house, five buy cars, and another five deposit money remaining from living consumption in the bank without buying houses or cars.
When the five families see 15 other families move into new houses, and drive their own cars to work, they begin to realize that they are happier than them. Because of that, why don’t I buy a car or buy a house, since my income is no less than theirs? Thereby, consciousness to buy houses and cars is increased. Eventually, these five families buy houses and cars. Of course, when some people see others buy high-end clothing, they will buy high-end clothing too. It is the same with computer consumption.
Excessive living consumption of individuals and households
Those who spend money on household and personal consumer goods continue to economic development, and individuals and families’ excessive consumption makes more contribution to the economy. The following are two excessive consumption plans for a family that has a savings of 30,000 Yuan after subtracting the normal living consumption from the annual gross income:
1. Plan A. With this money (30,000 Yuan) as a down payment, the family receives a loan of 70,000 Yuan and plans to pay the principal and interest within five years and pay less than 20,000 Yuan per year. In this way, the family can buy a car worth 100,000 Yuan.
2. Plan B. With this money (30,000 Yuan) as a down payment, the family borrows 270,000 Yuan and intends to pay the principal and interest within ten years and pay the principal and interest of 60,000 Yuan per year. In this way, the family can buy a house worth 300,000 Yuan.
From the analysis of the two plans, it can be seen that plan A is more suitable for the family, because such excessive consumption does not affect normal life, and provides enjoyment of the convenience brought by the car to the family in advance. However, plan B is not suitable for the family. Although this kind of excessive consumption allows them to buy valuable property, it requires the whole family to live frugally, severely affecting their normal family life. Excessive consumption contributes to national economic development, facilitating family life and the economic development of the whole society. However, excessive consumption is conditional. Otherwise, reckless consumption by borrowing is sure to have an impact on regular personal and family life. There may be a perspective in society that encourages excessive consumption, but an individual and family must have the consumption consciousness of making ends meet. We cannot pursue excessive consumption blindly, and we should be especially alert to excessive consumption by means of debt.
Case study
A family has three members and the joint income of husband and wife is 10,000 Yuan per month. They have the following expenditure:
1. It is used for house loans of 450,000 Yuan with the down payment of 150,000. It takes 30 years to pay off the loans. Each year 15,000 Yuan is paid on the loan with the annual interest rate 6 PCT and the sum of principal and interest per year is 42,000 Yuan. Subtracting 42,000 Yuan from the annual income of 120,000 Yuan leaves 78,000 Yuan.
2. 28,000 Yuan is left after subtracting 5,000 Yuan for the household living consumption per month. In China, this level of consumption belongs to the middle and upper levels.
3. By means of a loan, the family buys a car worth 30,000–40,000 Yuan to use for transport.
This premature consumption by the family is based on certain income and reasonable arrangements for the enjoyment of consumption. Any premature consumption of an individual and household with a fixed income and subsistence assurance can contribute greatly to economic development. Banks and securities companies should refuse to give loans for the purchase of consumption items to families without a fixed income through legal and administrative measures, so as to prevent financial and economic crisis. Any action of increasing consumption loans or relaxing financial instruments and business activities for profits should be strictly prohibited, so that financial and economic crisis can be avoided.
Personal household consumption and lifecycle consumption and financing
Personal household living consumption has a close relationship with the perimeter law of lifecycle. The amount of wealth a family creates when it is economically active determines its living level at present and in future. The pattern of a family’s wealth consumption is also influenced by religion, culture, and custom. In China, for a long time, a considerable number of families were affected by the deep-rooted concept that raising a child was insurance for the senior. A couple of reproductive age is faced with a sandwich situation at the time of creating wealth. Most wealth is spent on children and the elderly, with little left specifically for pension funds or insurance.
Since the founding of China, this situation has changed. Although some countries in the world provide certain social security for infants, young people, and seniors, exclusive state social security to protect the growth consumption of infants and young people and security living consumption is not enough. Even the economically developed United States cannot foresee social security difficulties. Therefore, individual household consumption should follow the rule of the life cycle. In the period of creating consumption, we should manage finances reasonably and make them value-added. For example, by means of depositing, buying insurance, or purchasing security funds, the growth and education consumption of the younger generation is ensured, and the living consumption level of seniors who have lost the ability to work is guaranteed, thereby allowing them to be happy in life.
Personal household consumption and the consumption of weddings and funerals
Weddings
Marriage is very vital in human life and cannot be taken lightly, so a wedding becomes a large family expense. It is natural to receive good wishes from relatives and friends at such a blissful event. However, some families pursue a luxurious wedding exceeding personal household consumption power, which is unnecessary. A happy marriage does not lie in luxurious or frugal wedding, but in the true love between the couple. The celebration of marriage without affecting the normal life consumption is justifiable. If the celebration of a wedding with loans and luxurious consumption brings difficulties for the after-wedding life, this demonstrates irrational consumption behavior. A simple wedding does not mean there is no happy life, and a luxurious wedding cannot guarantee a happy family.
Funerals
Looking after parents is a national and family virtue. We should care for their material living consumption and spiritual enjoyment of parents in their lifetime, which can make them feel happy. The loss of loved parents is very painful for the living. A funeral in memory of a dead relative is the representation of personal feeling and national custom and culture. A funeral should be simple, to reflect social civilization progress. In memory of guard soldier Zhang Side, Chairman Mao Zedong said:
No matter who dies in our troops, either a soldier or cook, as long as he has done some useful work, we have to hold the funeral and open the memorial meeting. This should become a system that should also be adopted by villagers. When a villager dies, we should open a memorial meeting to express our grief, thereby uniting the whole people.
Therefore, the entire community should respect the aged and love the young, hold simple funerals, and get rid of the customs of a luxurious burial. Moreover, it is not advocated to use luxurious burial of parents after their deaths just for show, instead of true love and respect during their lifetime.
Personal household consumption and social mutual help
Household living consumption is closely related to relatives, neighbors, and friends. There is a saying, ‘To give roses to others as a gift, will leave lingering fragrance in your hand.’ In other words, helping people in need will make one happy. Mutual help between people is a social morality and virtue. In case of difficulty in living consumption, social members, relatives, and friends should provide funds or material help, which is humane behavior and one source of social security funds.
Household consumption and deposit
When the living consumption of a person and their family is above the well-off level, they might spend their money in one of two ways. If there is a national social security system, they can spend money and enjoy living consumption, resulting in reduced household deposits. If there is no adequate social security or no social security, they have to spend money on individual and family living consumption, generally resulting in increasing savings. For example, in the United States, Germany, and other countries, as there is relatively good social security, people have a strong awareness of expenditure on household income and living consumption, and premature consumption. In rural China in the 20th century, with imperfect social security, the average family’s income usually only allowed them to live frugally. Thus, savings and deposits increase the rate of consumption funds.
Enjoying excessive consumption encourages national socio-economic development, and frugal living consumption – savings and deposits – can also make a great contribution to national economic development. Developing countries that need capital to develop obtain this capital from the state’s tax revenue, the profits of state-owned enterprises, and national savings, or else seek outside help and attract foreign capital and technology to make an investment in their country. The development of the three consumptions keeps meeting the increasing consumption demand for material and spiritual culture.
In summary, we have an analysis of the sources of individual household income (consumption fund) from different social systems. It can be seen that the consumption fund of a family is greatly influenced by the country’s policy of wealth distribution. Household living consumption is analyzed comprehensively from nine aspects of the Engel coefficient, which is a measure of household living standards and wealth, and closely related to financial management and living consumption.
The Chinese have a saying: ‘Clothing or eating cannot make you poor, but insufficient planning will make you poor’, which means that a person or a family should plan for income and have planning objectives. Only by making arrangements for living consumption can a person or families become wealthy and keep on developing. The importance of family living consumption and financial management is that it can raise the living consumption level, household income, and consumption that are closely linked with economic development. They also affect the development of the consumption chain and the overall national development, and are also influenced by the market rules of macro-economic control.
Abstemious consumption is very important, particularly in developing countries during the economic development, which could give countries more economic development funds.
We also clearly see that individual household living consumption is the core of the three consumptions. Without human living consumption, there would not be social consumption and production consumption. Individual household living consumption is the main consumption of social overall consumption. In addition to individual household consumption, there is also collective living consumption. Humans will not exist without human living consumption. So, meeting the growing consumption demand on material and spiritual culture and paying attention to the wealth management of individual household income and living consumption are fundamental to the development of the three consumptions.