Week 4. Drivers of consumption Michaelis (2000) summarizes some of the different drivers of consumption patterns. They include I. demographic, economic,

Week 4

Drivers of consumptionMichaelis (2000) summarizes some of the different drivers of consumption patterns. They include

I.demographic, economic, and technological change; II.resources, infrastructure, and time constraints; III.motivation, habit, need, and compulsion; and IV.social structures, identities, discourse, and symbols

2

Demographic change: Pop Growth The world population is expected to reach 7

billion in 2012, 8 billion in 2025 and 9 billion in 2045.

The increase in the length of the period required for each new billion to be added reflects a declining growth rate.

In fact, the global population growth rate peaked in the period from 1965 to 1970 at 2 per cent annually and has been declining since then.

For 2005-2010, it was estimated to be1.17 per cent per year, and it is projected to reach a low 0.36 per cent per year in 2045-2050.

3

Demographic change: Fertility RateGlobal fertility has declined markedly since

1965, from 5.0 children per woman in the period 1965-1970 to 2.6 children per woman in 2005-2010.

Since fertility in the more developed regions was a low 2.4 children per woman in 1965-

1970, the decline resulted mainly from reductions in developing countries, where

fertility dropped from 6.0 to 2.8 children per woman over the period considered.

4

Demographic change: Life ExpectancyBetter hygiene, improved nutrition and

scientifically based medical practices resulted in major reductions in mortality during the twentieth century.

By 1950-1955, the more developed regions, which benefited first from such advances, had a life expectancy at birth of 66 years, which has since increased to 77 years.

5

Demographic Change: Aged SocietySmaller families and longer life spans are shifting the

age distribution of the world population from younger to older.

In 1950, only 8 per cent of the world population was aged 60 years or over. By 2009, that proportion had risen to 11 per cent, and it is expected to reach 22 per cent in 2050.

Globally, the number of persons aged 60 or over is expected almost to triple, from 743 million in 2009 to

2 billion in 2050. By that date, the number of older persons will exceed the number of children under the age of 15.

6

Demographic Change: UrbanizationIn 2008, for the first time in history, the

number of urban dwellers surpassed the number of rural inhabitants.

World urbanization is expected to continue at a fast pace in many developing countries, yielding by 2050 a world population that will likely be 70 per cent urban.

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Environmental, Social equity and Moral concerns1)Environmental damage The extraction, production, use and disposal of

many goods and services cause serious environmental problems such as resource depletion, energy wastage, pollution of the air, water and land, and growth in the levels of solid, toxic and hazardous wastes.

2)PovertyWhile many people around the world, especially in the North, live lives of abundance and affluence, over a billion people still lack access to supplies of safe water, adequate sanitation, energy and nutrition.

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3)HealthThe production of many consumer goods cause extensive damage to human health through air and water pollution. While pollution is a major cause of premature death in the South, many diseases in the North are now considered 'lifestyle' diseases with people dying from the over-indulgence brought on by affluence.

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Consumption vs ExpenditureConsumption refers to resources actually

consumed.Expenditure excludes consumption that is not

based on market transactions. It refers to the purchase of a particular goods or services.

Some goods or services may not be immediately consumed, or at least they may be lasting benefits such as consumer durables.

Consumption should ideally capture the benefits that come from the use of the good, rather than the value of the purchase itself.

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Measurement of ConsumptionMost surveys collect data on four main classes of

consumption:1)Food items2)Non-food items3)Consumer durables4)Housing

Consumption is measured with a particular reference period in mind, with many surveys aim to accurately measure the total consumption of the household in the last year.

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Aggregating Different Components of ConsumptionA food consumption sub-aggregate is

constructed through the aggregation of:I.Food that is home producedII.Food items received in the market placeIII.Food items received as gifts or remittances

from other householdIV.Food received as in-kind payment from

employers.

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Non-Food ConsumptionMost surveys only collect data or purchased non-

food items, and do not consider home-production.Values rather than quantities are typically

reported.The recall period may vary for different non-food

consumption items, may be a month for daily-use items but longer for items that are purchased less frequently. They are then converted to a common reference period.

Some non-food expenditures e.g. Tax payments, gifts, lumpy expenditures (funeral, marriages) are usually excluded.

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Consumer DurablesConsumption of these goods refers to rental

equivalent or user cost of the good.It comprises of 2 components: i) the opportunity

cost of funds tied up in the durable goods; ii) the depreciation of the good.

The most important durable good is housing where rental value is computed.

For other durables, the value is generally done on the basis of the data on date of purchase and cost of acquisition and the lifetime of the goods. Alternatively, depreciation rates can be calculated using reported current values.

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Expenditure Survey in MalaysiaFirst Household Expenditure Survey was

done in 1957/58. Since 1993/94, HES is conducted every five

years.Latest report available is HES 2009/2010.

Laporan Penyiasatan Perbelanjaan Isi RumahReport on the Household Expenditure Survey

by Department of Statistics Malaysia

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Objective of HES1) To gather information on level and

polar/pattern of expenditure by households on products and services.

2) To use the information as basis for identification products and services that will be placed in Consumer Price Index ( Indeks Harga Pengguna, IHP).

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Method of Data CollectionInterview surveyHousehold s will be given a record book

where daily expenditure on products and services are entered for a month.

Purchasing of durable and semi durable goods and some selected items within a year including the month of the survey are recorded.

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Data GatheredSocio-demographic – relationship, marital status,

gender, age, job, data of birth, education level, income.

Household characteristics – composition, number of family members, type of house, ownership

Income and sourcesExpenditure for every household memberAreas are classified into metropolitan, big city,

small city and rural region.A total sample size of 14,084 were involved from

a population of 18

Measurement of Consumption ExpenditureThree approaches are used to determine

consumption expenditure:I.Acquisition approach – recorded at the time

of purchase of goods and servicesII.Consumption approach- water and electricityIII.Payment approach- advance deposit

payment in acquiring certain goods and services

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Definition of VariablesHousehold- “arrangements made by persons,

individually or in groups, for food and other essentials for living within the same quarters”.

For every selected household, only members who have stayed in the selected living quarters for 16 days or more during the reference month are qualified to be included in the survey.

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Classification of Expenditure Items

1. Food and non-alcoholic beverages

2. Alcoholic beverages and tobacco

3. Clothing and footware4. Housing, water,

electricity, gas and other fuels

5. Furnishings, household equipment and routine , household maintenance

6. Health7. Transport8. Communication

9. Recreation services and culture

10. Education11. Restaurants and hotels12. Miscellaneous good

and services

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Composition of average monthly household expenditure

%

1 Food and non-alcoholic beverages 20.1

2 Alcoholic beverages and tobacco 1.8

3 Clothing and footware 3.0

4 Housing, water, electricity, gas and other fuels 22.0

5 Furnishings, household equipment and routine , household maintenance

4.3

6 Health 1.4

7 Transport 16.1

8 Communication 5.3

9 Recreation services and culture 4.7

10 Education 2

11 Restaurants and hotels 10.9

12 Miscellaneous good and services 8.522