Household Budgets

The Household as a Unit

First, there is the traditional approach of classical economics in which the household is a key unit of analysis. Theoretically, the household is treated as though it were an individual, earning and spending money to maintain a standard of living that is assumed to be shared by all household members. Working with this definition has underlined the enormous variations in household incomes and the extent [Page 744]to which budgets, and patterns of expenditure, vary with income level. In general, the proportion of its income that a household spends on food decreases as household income rises; this is known as Engel's Law and it also applies to spending on housing and other necessities. Thus, the proportion of income spent on food in developed countries varies from under 10 percent for affluent households to over a third for low-income households. In the world as a whole, over a billion people live on less than $1.25 per day (United Nations 2009). At these income levels, managing the household budget becomes less a matter of making choices and more a matter of surviving at the most basic level.

Income and Expenditure

The second approach grows out of a critique of the traditional definition of a household, outlined already. This argues that in reality households neither earn nor spend money; both these activities are actually carried out by individuals. Anthropologists and economists working in developing countries have shown that how the money enters the household can affect the way it is used and spent. Different members of households may have different spending priorities. This means moving away from models of the household that emphasize sharing, altruism, and cooperation, to models that include the possibility of negotiation, bargaining, and even conflict. Many studies have shown that there is a positive association between the amount of money controlled by women and the amount the household spends on food, household necessities, women's and children's clothing, and child-care expenses. This was the key finding of the cross-national study carried out by Agnes Quisumbing and John Maluccio. There can be poor individuals in households with adequate incomes. Studies such as these have suggested that important social and economic processes take place between earning and spending and that the intra-household economy warrants investigation in its own right.

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