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Households usually prioritize spending with necessities for survival being purchased first, basic wants being satisfied first and the remaining income being saved with financial institution or spent on extra wants, called luxuries. Most households spend money on food, rental or home ownership, clothing and transport. All household spending within an economy is added together to calculate aggregate household spending, which is used to work out trends in consumer spending.
Income is the main influence on household spending patterns. Households with a lower income usually spend a higher proportion of their income on satisfying needs and basic wants than a person with a higher income. As income increases, households will increase the money they spend to satisfy their needs and basic wants until they reach a point where they have the quality they desire. The more expensive and higher-quality goods are called normal goods and the cheaper goods they previously purchased are called inferior goods. Although spending on satisfying needs and wants will increase as income increases, the proportion of the income spent decreases. Households usually spend a larger proportion of their money on luxuries as their income increases and research also shows they are more likely to save some of their income.
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