Households

Income is the strongest single influence on all three decisions.

• Spending. As income rises, total spending rises, because households can afford more goods and services. But the proportion of income spent tends to fall as income grows: a low-income household spends almost everything on necessities, while a high-income household can spend a smaller share and still cover its needs.
• Saving. As income rises, the proportion saved tends to rise, because once necessities are covered there is more income left over to set aside.
• Borrowing. Low-income households may need to borrow to afford necessities; if income falls, a household may have to spend a higher proportion of that income just to get by, leaving less to save and sometimes forcing it to borrow.