Essay on Factors Affecting Consumer Spending
There are many factors affecting consumer spending. Consumer spending is also called consumer demand or simply consumption. It forms the largest aspect of the effective demand or aggregate demand at macroeconomic level.
Among the factors that affect consumer spending include the amount of disposable income. Disposable income is determined by several factors including wages, the cost of living and taxes. For instance, when there is a reduction in VAT, the amount of disposable income increases. This encourages spending among consumers. If the cost of living increases without a corresponding increase in wages, consumer spending decreases.
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Get Help Now!Confidence in the future also affects consumer’s spending. If the confidence of a consumer about the future is low due to factors such as fear of unemployment, the consumer will save more and spend less. Usually, consumers fear unemployment and this forces them to save for the future instead of spending.
Consumer spending is also affected by interest rates. Disposable income increases when interest rates are lowered because this reduces the interest on mortgages. Reduced interest rates also make borrowing cheaper while giving less incentives for saving which encourages spending. In some cases, savers’ income can be low when the interest rates are low.
Deflation or inflation also affects consumer spending. Consumer spending falls during the deflation period. This is because consumers know that goods will be sold at cheaper prices in the future. This makes them to delay their spending so that they can purchase goods later when prices fall.
Consumer spending is also affected by the prices of houses. When prices of houses are high, most consumers feel wealthier. This gives them confident to spend more. When prices of houses go up, consumers can also engage in equity withdrawal. This enables them to remortgage and spend more. Credit availability is also a major factor affecting consumer sp
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