The national economy and consumers
An economy is everything people do to earn, make, sell and buy. Seen from above, money moves in a circle.
- Households sell their work and get wages. They spend on goods and services.
- Firms sell goods and pay wages and profits.
- Government collects taxes and gives roads, schools and hospitals.
When consumers spend more, firms hire more and the economy grows. When people stop spending, firms slow down. So the choices of ordinary consumers matter for the whole country.
Inflation
Inflation means prices rise in general, so one coin buys less. If bread goes from 2 to 2.5, the rise is (0.5 ÷ 2) × 100 = 25%. If your income does not rise too, you are poorer in what you can buy.
Social change and ways of buying
Society keeps changing, and shopping follows.
- More phones and internet: online shopping, delivery apps and digital ads.
- More old people and smaller families: smaller packs, home delivery, health products.
- Busy parents: ready food and quick delivery.
Ways to buy
- Street or local shop: you see the item, bargain, and get it now.
- Mall or supermarket: many brands, fixed prices.
- Online: easy to compare and deliver to the door, but you cannot touch the item and it is easy to over-buy.
- Subscription: you pay every month, which is easy to forget.
- Phone or door-to-door selling: be careful, say no to pressure.
Ways to pay and consumer credit
Ways to pay:
- Cash: simple, but easy to lose, and no record.
- Card, mobile wallet or QR: the money leaves your bank right away. It leaves a record.
- Credit: a credit card, a loan or buy-now-pay-later. You use the lender's money first and repay later.
Interest is the fee for borrowing. Simple interest = principal × rate × time. A loan of 10,000 at 12% a year costs 1,200 extra in one year.
Credit is useful for big needs (a home, study). It is risky for wants, because late payments add more fees and a bad credit record makes later loans costly.
Planning household finances
A budget is a plan for your money.
- Write down the monthly income.
- List fixed needs: rent, food, school, transport, bills.
- Set aside savings first (an emergency fund of about 3 to 6 months of needs is a good aim).
- Use what is left for wants.
- Check at month end and adjust.
Money to spend on wants = income − needs − savings. If this is negative, you must cut a want, raise income or borrow, and borrowing has a cost.
Try it
At home, write one week of your family's spending in a notebook and sort it into needs, wants and savings. In the 3D, move the sliders and watch the bar turn red.
Key formulas and definitions
- Inflation rate = (new price − old price) ÷ old price × 100
- Money for wants = income − needs − savings
- Simple interest = principal × rate × time
- Amount to repay = principal + interest
- Circular flow: households spend → firms pay wages → households spend again
Worked examples
1. Milk was 50 a litre last year and is 55 now. What is the rise in percent?
Rise = 55 − 50 = 5. Percent = 5 ÷ 50 × 100 = 10%.
2. A family earns 24,000. Needs are 14,000 and they want to save 4,000. How much is left for wants?
Wants money = 24,000 − 14,000 − 4,000 = 6,000.
3. A shop offers a phone for 12,000 now, or 1,100 a month for 12 months. Which costs more and by how much?
12 × 1,100 = 13,200. The monthly plan costs 13,200 − 12,000 = 1,200 more. That extra is the cost of credit.
Common mistakes
- Thinking inflation means only one item got dearer. It means prices rise in general.
- Treating buy-now-pay-later as free money. The fee or interest is the price of waiting.
- Spending first and saving what is left. Save first, then spend.
- Forgetting subscriptions that charge every month.