“Household” is another word for family. We use the term household when we discuss economic matters that affect families. From an economic point of view, households behave much like any other economic unit, i.e., they both have income and expenses.
A household has two primary income sources: Salaries and income from assets. Two examples of the latter are rental income from an apartment and interest on a bank deposit. Income from assets can be divided into two categories:
- Income from physical assets, such as homes and land, i.e., rental income.
- Income from financial securities and bank deposits, for example, interest, dividends, and profits from the sale of stocks, which are called yields.
There are several types of expenditures:
(including interest on loans)
- Spending on consumer goods (including interest on loans).
- Spending on housing.
Savings vs. Shortfall
- If total income is greater than expenses, then the family is able to save money.
- If total income is less than expenses, the family has a shortfall of money, and they must then either rely on loans, or use past savings.
Households have varying levels of income. Those with high incomes are called wealthy.
Those with low incomes are called poor.
Measuring income inequality
Economists have adopted two methods to measure inequality in income levels within a country:
- The Lorenz curve.
- The Gini index (or Gini coefficient).