How the Economy Affects the Family Over a Decade.

Subject: Economics
Pages: 25
Words: 7459
Reading time:
26 min
Study level: PhD


The economists did not pay much attention to the problems of family up to 1950. But since that time the economic analyses is used to explain the choice I marriage, the reason for divorce, the number of children in the family, the size of investments in to the capital of every child, the role of working women in the families, the reasons which inspire old people to rely on their children, and many other decisions concerning the family.

In only 3 hours we’ll deliver a custom How the Economy Affects the Family Over a Decade. essay written 100% from scratch Get help

It should be mentioned that the economic approach made a great contribution to the understanding of the dramatic fall of the birth rate during the last 100 years, and the rapid increasing of working women in the late 50-ies, the rapid increasing in the number of divorces during the late two decades and many other important changes in families. Today the economy of family is a developing area of economic science.

Probably because the family economy is a new area for researching, it is discussed in a few works. Family is a very important institution and to define the process of the main mechanisms of its functioning is a decent task for any scientific discipline.

Hypothesis: a study of economic functions and roles of households and families in the socio-economic development of the country allows in theory to justify the direction of economic policy and on that basis to enable a more efficient and effective their inclusion in the processes of recovery and growth.

Malthusian and neoclassical models

Researching the interaction of economic growth and family mechanisms it would be natural to start with the great contribution of Thomas Malthus. The most appropriate name for his theory is the Malthusian theory of earnings average income, though very often it is names as the theory of population growth.

His first work “The commentaries to the thoughts of Godwin, Condors and other authors” starts with the objections to these authors, he says that the economic state of the mankind will be permanently increasing. Malthus developed his own theory of population growth and came to the pessimistic conclusion concerning the far-term economic expectations of any average family.

Malthusian model presupposes the descending return comparing to the number of population (i.e. employment), if the size of land and capital remains unchangeable.

Academic experts
We will write a custom Economics essay specifically for you for only $16.00 $11/page Learn more

The analytical nucleus of his model is in the permanent return simultaneously with the increasing of labor affords and capital, if the size of capital does not react to the changes in earnings and percentage rates.

According to Malthus, the reactions of the indicators of birth rates and mortality to the changes of income determine the population increasing. The population increasing is very low when earnings are low, because in fact people get married later and that is why they have fewer children (preventive population limitation) and also because of the mortality increasing in the poor families (positive limitation). Historical researches show that the impact of the economic state on the age of getting marriage would be more considerable, at least in Europe, that the level of mortality.

In Malthusian model the long-term level of the earnings remains stable while even having unexpected troubles. For example, if a dangerous disease causes a great level of mortality, the industry is more active. As a result the increasing earnings inspire people to get married earlier and to have more children. So, the population increases and in some time gets earning to the starting point again. So, this process renews the earnings and the number of population again.

If the area increases, the earnings are increased also, this stimulates birth rates. So, the increasing of population leads the reducing of earnings until the previous long-term level is achieved.

This example shows that the equilibrium level of earnings is not so vulnerable as the number of population. So, if the tastes of people are unmanageable and the technologies are not improved, the equilibrium level remains the same being at the same stable point where an average family can have two children.

To a certain extent Malthusian model really helps to explain the long-term changes in the levels of wages in Europe until XIX century. People, obviously, got married earlier, when the level of wages was above the equilibrium, and later – when it was below.

The irony is that the first “experience” by Maltus concerning population was published in 1798, at the end of the XVIII century. His system has been adopted by many leading economists of the XIX-th century but the events after the publication of his work has been unfavorable to Malthusian theory. Ultimately, fertility declined dramatically, but did not increase, although the level of wages and per capita income grew steadily over the XIX-th and XX-th centuries in the U.S., Western Europe and Japan.

15% OFF Get your very first custom-written academic paper with 15% off Get discount

This contradiction between theory and facts explains why the majority of economists in the first half of this century have shown no particular interest in studying long-term trends in income and population. But the problem is too important to leave it unattended. In 1950-1960 Robert Solou, David Kass and other authors have developed a neoclassical model of economic growth. She has two significant advantages comparing to Malthusian. Everyone maximizes utility, which depends on their current and future consumption. It is a very important fact that changes are occurring in the amount of capital in response to the changes in rates of return on investment. Unfortunately, the neoclassical model makes a significant step backwards from Malthusian, suggesting that other factors as fertility and population growth are independent on wages, incomes and prices.

Becker is confident that the main characteristics of the simple neoclassical models are well known. Despite of differences in assumptions of analytical and neoclassical structures of Malthusian models are rather close and many of their conclusions even matches. If the technology and preferences do not change over time, both models have sustained plateau capita income. The neoclassical equilibrium mechanism works through changes in investment rules, while the Malthusian mechanism operates through the changes in population growth. This can be illustrated by the following example. If investments into the capitals exceed plateau, the rate of return on capital would be lower and wages above their equilibrium values. In the neoclassical model it weakens incentives for investments that over time leads to the reduction capitals (with exogenous population growth). In this Malthusian model the growth of population is stimulated, which also decreases with time as capitals (with the exogenous nature of capital accumulation).

In the Malthusian model the demographic shock in the long term has no impact on population and per capita income. Similarly, in the neoclassical model of shock in capital accumulation (such as through destruction during the war) does not provide any lasting impact on the total amount of capital or per capita income.

It is not easy to explain the sustained growth of per capita income over the past two centuries to explain within the neoclassical model as well as in the Malthusian model. It is known that for “explanations” for sustained growth in per capita income in the neoclassical model exogenous technological progress is postulated.

Family and economical growth

Quite fast economic science was disappointed in neoclassical models, perhaps because it does not promote an understanding of technological progress. The enthusiasm, reflected in hundreds of publications, expands and deepens this model in 1950-1960-ies turned into a loss of interest in the analysis of the growth process, which is slightly similar to the situation prevailing in the first half of this century.

There is an opportunity to create a more acceptable model of economic growth, combining the best features of neoclassical and Malthusian models and making the emphasis on investment in knowledge and power of the people.

The neoclassic are right, stressing on the importance of endogenous accumulation of capital and maximizing utility. Malthusians are right to insist on the dependence of fertility and other components of population growth on the changes in economy, as well as the significant impact of these variables on economic development.

Get your customised and 100% plagiarism-free paper on any subject done for only $16.00 $11/page Let us help you

Becker gives an example of the neoclassical model, where parents choose the number of children and the amount of capital (human or physical) to be transferred to inherit of each child. Parents’ altruism or “love” to children provides a solid foundation for the analysis of the demand for quantity and quality of the so-called children. Altruism means that the usefulness of parents depend on the utility received by each child. Altruism as the assumptions is applicable to the vast majority of families, although relations are determined by children and parents and other motives. Altruism, falling to one child, apparently is back proportional to the number of children, so that additional child reduces the value to be derived from the parents of each individual child, just as the purchase of additional machines reduces the value defined by an average of one vehicle.

Such altruism easily fits into the neoclassical utility function, assuming that the level of usefulness parents depends not only on their own consumption during the life cycle, but also on their degree of altruism per child, the number of children and level of utility, made for each child. An important consequence of such a phrase is that the preference for consumption of parents compared with the consumption of children (the so-called time preference) is not exogenous but growing as increasing numbers of children.

Resources available to the parents’ consist of inherited capital and labor and wages which are spent either on their own consumption or to cover the costs of maintaining children, either on the transfer of children and other human capital. Since the upbringing of children requires time, the cost of raising them is positively linked to the value of time parents. Per capita income will be higher among generations of children than that of parents, every child inherited if the aggregate capital exceeds the capital, get inherited from each parent.

Parents choose the best values of their own consumption, the number of children and the amount of capital to be transferred to each child, taking into account the costs of maintaining the addiction of children and their usefulness to the level of usefulness of children. This approach allows us to explain much in the behavior of fertility, which was done by R. Barrow and Becker. I want to cite just some of the findings, making changes to the building of neoclassical model of capital accumulation and economic growth.

If the number of children, which brings a family demand, in direct proportion to income parents, or at least, there is no strong inversely related, this model also has a stable equilibrium of capitals levels and per capita income. But these stable conditions depend on variables to modify the demand for children.

An example of this there are the consequences of prolonged, but temporary fall in productivity and income, for example, because of the disruption caused by prolonged depression. In the neoclassical model this fall in long-term impact is not helping either the per capita or in the aggregate income. In our modified model there is a prolonged decline in productivity could lead to a permanently lower level of aggregate income, because with declining productivity, wages and standards percent may reduce fertility. There is an example is the sharp reduction in fertility during the Great Depression.

More than two decades ago, Barrow has shown that even a small “vaccinated” economics of family radically changes the traditional presentation on the impact of budget deficits on private savings. For example, scarce funding for the social security system imposes a tax on future generations, necessary to support the elderly. As parents’ altruists, leaving a legacy to their children, do not seek to redistribute income between generations, they increase the size of the inheritance transferred to compensate the children of those results of future taxes. If this type of families fairly distributed, the payment of social security and other government spending, financed through taxes on future generations, will not have a significant effect on private savings.

An additional “vaccine” for family economy leads to even more radical in many respects conclusions, but at the same time, and more accustomed to evaluate the relationship between social security and savings. In various versions equivalence theorem emphasizes that some families do not leave inheritance. Specialists on the economies of developing countries have long been noticed that parents appreciate children who support them in old age. The social security system, replacing the support of parents of children in state support, increased the net costs of children for their parents (but not to society), because now they are not so useful for elderly parents. As a consequence, the social security system helps to reduce the demand for children. It also reduces the demand for children and from those parents who do not receive support, but leave a legacy. Net costs for the children of such parents are increasing, too, when they increase the size of the inheritance in order to offset the impact on children of taxes on financing the social security system.

For the above reasons, the demand for smaller children should increase capital, which receives a legacy of every child. Consequently, social security and other government transfers from one generation to another increase private savings per child and, as a result, increases in the next generation wages and investments. Nevertheless, total private savings present generation is declining, as in standard models of the life cycle without taking into account the factors inheritance if the effect of falling fertility stronger effect of increasing savings per child.

Consider now the question on the amount of taxes levied. Initially, the tax on income from capital reduces revenue remaining after paying taxes, and reduces incentives to invest. In the neoclassical model of capital will decline until the rate of return after tax again are within the norm this time of preference.

The problematic of this withdrawal is linked to neoclassical prerequisite on the same level of fertility, especially in durable unreasonably changes in taxation. If fertility positively linked with the level of per capita income, with decreasing capital in response to tax it begins to decline. The decrease is weakened by the current consumption and increases the demand for investment in each child because of the interdependence between quality and quantity of children. As a result, the equilibrium rate of return after tax ‘should also diminish, and even in the long term tax on capital will be “transferred” only partially.

This conclusion will be even more radical, if fertility negatively is associated with per capita income (for reasons that are discussed below). In this case, the birth rate increases, reducing the amount of capital. Because the increase in fertility reduces investment per child, the equilibrium rate of return after tax would increase. In other words, we face a paradox: a tax on capital, ultimately “shifted” more than 100%. The birth rate will decrease if a positive impact on its revenue growth will be weaker than the negative impacts associated with increased costs of maintaining children. In rich countries the effect of substitution often prevails over the effect of income, since there are caring for a child requires parents’ significant time and energy. If fertility negatively associated with per capita income, the growth of investments beyond the equilibrium level reduces fertility and thus contributes to increased investment per child. Te investments will continue to rise over time, if a positive impact on investment will prove stronger than the negative effect of reduced-impact standards. Consequently, the reverse dependence of fertility capita income could destabilize the situation, which in other respects is a stable equilibrium.

The demographics know that the country’s birth rate eventually falls. Much rarer it is understood that the negative correlation between the level of fertility in the country and its sustainable income could upset the balance and cause a long period of raising per capita income. However, although in the early stages of fertility decline – this is an important incentive by itself it can not explain the sustained economic growth over a century and more. In the absence of other forces growing economy, described by neoclassical production function, but not knowing a continuous scientific and technological progress will shift, ultimately, to a sustainable equilibrium state with low fertility and high per capita income.

Promising approach to the explanation of sustained economic growth, complementing the role of fertility, based on full consideration of the specific qualities of education and other means of learning. An important is property education and other types of human capital from this perspective and investing to them is so productive, more than previously accumulated investments. In other words, the accumulation of knowledge and abilities in the past facilitates the receipt of additional knowledge in the present. This property is widely used in teaching children with learning mathematics and science. Such technology production implies that the rate of return on investment in human capital can not only failed to decline, but even increased with increasing stock of human capital.

Perhaps in the times of Malthus there was a reason to neglect investment in human capital, but you can not justify disregard for him in the neoclassical growth theory. Modern society spends huge funds for education and other types of training and parental investment in child are much important source of capital formation stock inherited or stockpiling, physical capital over the life cycle. Dale Jorgenson and Barbara Fromeni estimate that human capital is more than 70% of the total capital stock in the United States. Such an assessment may be too understated because they do not take into account the contribution of human capital in production, implemented a household (although the authors and attempted to assess this issue). But 70% may be, and above the actual proportion, because it does not take into account contribution to the production of “mere” labor. Becker suggested that in fact the share of human capital accounts from 50 to 90%. Of course, even the lowest limit means a tremendous contribution. Ignoring human capital in the calculation of national wealth: income noticeably distorted the results of comparisons of rules and savings rate of accumulation of wealth.

Only recently in the patterns of growth, it was recognized that in order to maintain sustainable economic growth is important, factors such as speeding up training on the basis of already existing human capital. Together with Kevin Murphy Becker a model is developed that takes into account such production technology of human capital, together with factors such as unskilled labor, physical capital and endogenous fertility as a result of altruism. This model is “Malthusian” balance at the point where the level of per capita income is constant and low, and fertility – high. However, if this balance is exposed to powerful technological or other shocks (because good chance), the economy is beginning to shift to a sustainable trajectory of balanced growth with declining fertility and increasing investment per child. Knowledge is constantly growing, embodied into additional human capital.

The economy of the family is essential for analysis, as well as the choice of the number of children and level of investment in human capital each child helps to determine whether the economy will reach the state of “good” equilibrium (i.e., balanced growth) or “bad” (i.e. Malthusian) balance. Obviously, we do not have a full explanation of economic growth (public policy, the effect of conglomeration and other factors are undoubtedly important), but Becker is confident that this study makes a significant contribution to the search for an answer to this question.

Short and long cycles

Now I’d like to stop on the interaction between the conduct of family and cyclical changes in aggregate output and other variables. For centuries it was known that marriage, childbearing and other forms of family behavior react to fluctuations in the levels of aggregate output and prices. J. Yul, one of the first using regressive analyses in the social sciences, found that in the XIX century. In England marriages and fertility rates have varied depending on the phases of economic cycles. Subsequent studies have shown that age at marriage, birth of first child, divorce, and possibly involving secondary workers in the labor force – all these figures are changing in many countries procyclic. Fertility rates in the United States clearly have to behave cyclical after many married women started working outside the home. During the recession of child cheaper because it reduced the value of time spent on child working mothers. Investing in education and other forms of human capital behave much less procyclic compared with investment in physical capital because the value of time, which sacrifices study, in bad times below.

Of course, none of the competing models of economic macro-economic cycle, whether Keynesian, monetarian, neoclassical or real, they are not based on the behavior of the family as the cause of cycles. But even 50 years ago it was feared that the slowdown in population growth will be the main cause of the centuries-long stagnation. Perhaps the behavior of the family plays a crucial role in generating and normal economic cycles. For example, increasing the supply of labor of married women and youth, when domestic work or education becomes less attractive, can cause cyclical changes in aggregate output and other variables. Cycles, starting with improvements in the labor sentence, underlie the negative relationship between wage levels and the combined issuance observed in different phases of economic cycles. This could explain why, positive relationship cyclical fluctuations are not so clearly, as envisaged in the models cycle, with emphasis on demand. While the behavior of the family, apparently having little impact on the mechanism of conventional economic cycles, it probably is largely a determining for long business cycles. Malthus argued that family decisions cause long-term fluctuations in the economy through the influence, first, later marriages in delaying childbirth and secondly, delayed childbirth on the labor force. In modern demographic studies long cycles of population growth derived from the ratio between crude birth and age structure of populations, as well as, perhaps, between birth and strength of different cohorts. In the modified-Malthusian neoclassical model choice within the family is of long cycles, not only population growth, but also of capital, production and other variables, if the elasticity of the degree of altruism per child on the number of children decreases with the increase in family size. In this case, fertility and per capita income are beginning to experience fluctuations over the cycle length to the next whenever the economy out of equilibrium.

The real risks faced by the elderly, the sick, certainly not in more affluent countries such as Germany, the United States than in the poor countries, such as China, India, and they are unlikely to increase during economic development. Nevertheless, the first large-scale social welfare program was introduced in Germany only 100 years ago. China, India and many other countries still have a modest program, not covering a large part of their elderly population. We believe public schools for granted, but they do not play a significant role until the second half of the XIX century. Public and private programs that protect from the effects of disease and unemployment have emerged later and still less common than the pension system and public schools. Throughout the history of risk and danger faced by the elderly, youth, the sick and unemployed, mainly softens the family, rather than government transfer payments, private charities or private insurance. Typically, the elderly or infirm parents care, children, unemployed seeking temporary support to the family and parents spend a lot of time, money and energy to raise and educate their children. Despite the rapid growth of payments for social security programs over the past decade, almost 20% American women aged 65 and older still live with their children. Altruism and love of parents, children, spouses and other relatives helped protect family members from the dangers of childhood, old age and other difficult periods of life. When altruism is insufficient, it goes to the forefront what sociologists call social norms that lead children, parents, spouses and other relatives to assist needy family members. In addition, family members are using frequent communication with each other to reinforce feelings of guilt from the fact of them who refuse to support. Formal analysis of the relationship of overlapping generations begins with the excellent work of Paul Samuelson, appeared in 1958. This article has raised a lot of literature, a list which continues to grow and to this day. While Samuelson mentioned in passing on the social contract, altruism and family obligations, in his model, as in the subsequent literature, it is assumed that each individual acts as a middle-aged people with no personal ties with older people. Lengthy review of models with overlapping generations in the recently released “New dictionary Palgrave” absolutely does not affect the problem of relations between members of different generations in the family. I believe that the neglect of children, personal relations between parents, children, husbands and wives, other family members are often forced to focus on minor issues and distract our attention from some important consequences of the interaction of different generations.

An example of drawing attention to secondary issues can be a concern the plight of older people with little long-term assets to finance consumption in old age. In the authoritative works on the demand for money social role of the past often boils down to their ability to persist for a long time, which allows older people to finance their consumption by offering a new generation of the money accumulated in their youth. However, when anthropologists have researched the primitive society, who do not know laundering and other long-term assets, they find that older people finance their consumption by relying primarily on support for children and other relatives. In fact, virtually all societies, primitive and developed, children are the most important source of assistance for the elderly, and the accumulation of money is aside.

The theorists of general equilibrium concerned, above all, about the plurality of equilibrium problems, inefficiencies and problems that arise in models, where crossing generations coexist together in the infinitely distant future. While these problems and will not disappear completely, I believe that they will be less important, if included in the overlapping generations model with assistance and informal transactions between parents, children and others; members of the same family.

Since the “State” by Plato philosophers continually ask themselves whether sufficient parental investment in health, skills and morals of children? Models with overlapping generations usually do not take into account childhood and focus on saving middle-aged people and their dealings with older people. Parenting parents is not only important; it has great impact on relations between older people and people of middle age.

Becker is limited to outlining the scheme only with analysis of how families respond to the needs of the elderly and children. Let’s start with a simple situation where parents’ altruists leave a legacy to their children. The combination of altruism and leave a legacy eliminates the difficulties in financing the welfare maximize investment in the health of children, in their preparation unto other types of human capital. If the rule limiting the impact of additional investments in human capital exceeds the limits of income from other assets, additional human capital will enhance the well-being, as parents and children alike. Parents can reduce their savings and thus offset the negative impact on their consumption of low-cost human capital to their children, but they can also reduce the size of the inheritance in order to offset the impact of savings to lower their consumption in old age.

Partially the funds to be transferred by inheritance also protect parents from the multitude of risks in old age. Ability to rely on the money deferred for inheritance provides something like a lifetime annuity that provides protection in the event of unforeseen long life and other risks of old age. For example, parents, who live longer than expected, spend funds that were collected to leave a legacy, on their own consumption during the extra period allocated to them. If inheritance is not a large part of the assets of children, it can provide elderly parents excellent protection against various threats. And yet, change the value of inheritance is not helping much influence on the welfare of children. In fact, children support their elderly parents, even though such support is not entirely voluntary.

The analysis is complicated; if parents leave no legacy because they’re not too altruistic or perhaps expect that their children will improve their well-being of themselves. In such families, there is a tendency to under-invest in children and parents to inadequate protection from the dangers of old age, so as not formed inheritance to finance investment in children and support parents in old age.

Social norms, guilt and other such arrangements could significantly alleviate the shortage of investment and protection. They can make even selfish parents invest in children and selfish children to care for sick or poor parents. Economists do not take into account such things as social norms and feelings of guilt, because nobody makes it really does not know how they develop. Moreover, sociologists too often use these standards as a deus ex machina to explain the behavior that is difficult to explain how something is different. Despite this, rules and other mechanisms invisible certainly have a tremendous impact on relations between family members in many societies, though, apparently, and not working as effectively to ensure the connection between generations, as the leaves legacy. Parents in wealthy countries have more room to spend on children and on their own protection in old age. Then why did during the last century public expenditure, as the young and older people in Western countries with the growth of their well-being also significantly increase? One reason for the weakening of social norms in industrialized countries with the anonymity of urban life, where elderly parents often live far from their adult children. Another reason that better lend theoretical formulation – is a higher rate of return of investment in health and training of children in industrialized countries. Parents until ready to undertake profitable investments in children, which opens the possibility in the context of economic development until they can rely on gifts and inheritance intended for transmission to children. But the gift and inheritance would be negligible in many families, many who invest in their children. These families will not invest in children, especially when the weak pressure of moral standards. In this case, the growth of public spending on education and other types of public investment in children as the country looks largely as a reaction to the positive effects of economic growth, increase the profitability of investments in human capital. Because families, who do not delay means inheritance, are at risk in old age, it is not difficult to understand why public expenditure on social welfare and health care of elderly in industrialized countries also grew rapidly. However, you may wonder to learn that public spending on the elderly was carried out not by the younger generation. In the United States since 1940, the ratio between the costs of a young man to 22 years and the costs of the elderly people after 65 years virtually unchanged. Our analysis, taking into account as investment in human capital, and support in old age, may explain why the cost of young and the elderly grow in parallel. In contrast, the common view of the struggle between generations (is that spending on the elderly grew faster because of their increased numbers and political power) is not able to explain why spending on children grown as fast. As part of the model with overlapping generations to explain also the problem of inequality and transfer of wealth or poverty from generation to generation.

Families contribute to the perpetuation of inequality, because children inherit the ability and other “talent” parents. Moreover, parents are the main source of assets and human capital of children. Ability and other qualities are inherited from parents to children in descending order in the wealthy families where parents earn a lot, while in poor families where parents earn little, they go on rising. However, poor families do not invest much in each child also because they are more numerous and less stable. Therefore, children from poor families, in general, earn more parents, but do not reach the average level of his generation, while children from wealthy families earn less than their parents, but higher than the average of his generation. Earnings depend not only on inherited natural qualities, but also from investments in human capital. From our preceding analysis suggests that in rich families no tendency to the small investment in human capital of children once they leave the family inheritance and gifts. Poor families do no invest in each child also because they are more and more likely to fall. Therefore, the ratio between the salaries of fathers and children in wealthy families depends mainly on the relationship between their natural qualities, while the ratio between the salaries of fathers and children in poor families also depends on the degree investments in each child.

In other words, without compensatory payments to support public investment in human capital of poor children low earnings would have been more resilient than high, for many generations, that is The so-called culture of poverty, transmitted from generation to generation, would have prevailed over the privileged sectors of culture. In all countries, including the U.S., several European countries and several countries in Asia and Latin America, earnings steadily shifted to the average level in the transition from one generation of fathers to children. Perhaps significantly less than 40% deviation earnings up or down from their mid-level passed from fathers to sons, and certainly very slight deviation, as in one or the other way saved from three generations of the family. Obviously, inherited ability and quality depend on earnings, only to a small extent, passed on from parents to children. This trend towards a return of “moderate prosperity to moderate prosperity” for a period of three generations manifested long before the industrialization, as well as the introduction of policies of state support for education and other types of human capital. In all these countries, low wages, just as high, hardly passed from fathers to sons. Adoption F. Knight, that family life is of growing inequality is not consistent with the available facts. By the same data as the U.S., both in England seem to confirm the correctness of our theory that the tendency to transfer from one generation to another low wages is more sustainable than the highest. Of course, incomes of rich families are descendants from generation to generation slowly than earnings, because children from wealthy families receive inheritance and gifts from their parents.

The problem of the family is important for all countries regardless of the type or level of economic development. People spend most of their lives in a state of dependence – from parents in childhood and adult children in old age. Marriage – is a critical step for most people, children take time, energy and money parents, cause of divorce very often there are economic difficulties, psychological depression, etc. Economic analysis of conduct family encourages the development of technical apparatus and means of research, which already had an impact on many sections of macroeconomics, and more – on the economy of labor and agriculture, as well as the organization theory and the theory of industry preferences. Consideration allocated to divorce as a mutual decision spouses, based on information obtained during a joint life, contributed to the fact that in studies of breaking off relations between firms and workers in the labor market theoretical distinction between voluntary and forced layoffs proved smooth and has been emphasizing the role of information on the conditions and productivity, accumulate over time in the workplace. But the basic idea Becker not to recall the importance of the family as such, even the well-being of the family – is the main task of successfully operating economic system. And not to demonstrate analysis technique that helps to understand that the choice exercised by families, it is important to consider in other sections of economic science. The basic idea is that the behavior of the family actively, not passively, degenerative, rather than exogenous. The family had a profound impact on the economy, and economic development significantly changes the family structure and nature of its decisions. The growing awareness of the interaction of economic development and decision-making at the household level will help ensure that the mainly during economic thought she found a worthy place.

Family economy starts with the birth of the family, with the formulating principles and policies about a minimum security and perhaps, a rich family life with the organization and daily housekeeping.

It should be emphasized that the family home is your cradle and your refuge, as parents, siblings; other relatives are the closest and love you. Prevailing peace in the family makes a happy family life, making the joy and peace, protecting the family from the hardship and internal strife. Any family is the main condition of its moral and material well-being.

According to the head of the World Bank M. Carter, «the role of the state bank as a de facto monopoly in the market of private savings should be rethought». The essence of Carter’s statement is that unlike other banks’ deposits the State Bank is guaranteed by the State. This practice creates a situation where, it is fair competition among lenders. The head of the World Bank believes that the principle of market deposits possible competition among public banks, there are plans in mind some of the State Bank to expand its retail business. Nevertheless, Carter calls on Russia to seek «financial sector was in private hands, with strong regulatory functions of the state».

Family finances

The establishment of normal conditions for the production of human factors requires not only good housekeeping, but also the creation and use of the family budget.

Family budget consists of two parts: income and expenditure.

Earnings include the following:

  • Wages;
  • Business income;
  • Income from property (rent, interest, rent, dividends);
  • Government transfer payments (pensions, scholarships, grants, free health care, education);
  • Income from other sources (inheritance, etc.).

The cost of family budget consists of the following articles:

  • Insurance;
  • Taxes;
  • Food and flavor products;
  • Clothing and footwear;
  • Rent;
  • Electricity;
  • Furniture, household appliances;
  • Transportation;
  • Industrial goods;
  • Education, entertainment;
  • Leisure, Travel;
  • Voluntary donations and contributions to community organizations;
  • Miscellaneous expenses;
  • Accumulation (savings).

Among the income the greatest share in most families makes up wages and business income, although they are extremely varied on individual families. Typically, these articles earnings determine the welfare of the family.

Property income is essential. In the dynamics of family property developed countries dominated by a tendency to increase the proportion of the financial components of property (cash, securities, savings deposits, savings in life insurance funds, etc.).

Currently, the transfer of property by inheritance plays a lesser role in shaping the original property than is indicated above. And it means that young families should own efforts seek to increase their welfare.

Among the expenses of paramount importance are the costs of food, which in Russia in families with incomes below the minimum level of accounted for 60 to 90% of medium-capita income – 42% in high-paying families – 28-29%, in the U.S., they accounted for 25.4%, Western Europe – 20%, Japan – 25-30%, i.e. there is a downward trend.

According to estimates of American experts, the per capita consumption of Russian families on the eve of 90-ies was 34.4% of the USA, for foodstuffs, 54%, clothing – 39%, durable goods – 20%. The British say that money spent on food – the money released into the air. It is questionable, but nonetheless often families spend for this purpose far more than is necessary. Large losses caused unreasonable family budget purchase products, many of whom are finishing their lives in the garbage can. Russian economists estimated that only bakery in the beginning 90-ies we have discarded approximately 15-20%. In response to rising prices for bread, now many families have been treated with greater prudence. In light of the other foods (milk, meat, etc.) «average family» loses by his own fault from 4 to 12% of total income. Usually much money is spent for food in the debt cycle of family life.

The budget reflects the socio-economic status of the family, entrepreneurial activity, standard of living, education, investment potential and more.

Living standards in individual countries is different, and one of the indicators of the level, is the consumer basket.

The consumer basket – this is a complete set of consumer (material and spiritual) benefits and services required to meet the normal needs of the average family, ensuring its normal livelihoods.

The consumer basket is divided into three parts: product, non-food goods and services. The reference is the food basket, as well as for people living below the poverty line, food – the main item of expenditure. According to the methodology of Health USA, for normal consumption expenditure on food should be 1 / 3 of total consumer spending. Hence the border of poverty is triple the value of expenditure on food.

Public necessity, standard of consumption in developed countries today also includes: providing apartment, house, car, giving (second home).

The consumer basket is the basis for determining a living wage, the other part of which (in addition to the food basket) is a non-basket of goods and services. The cost of living wage also includes taxes and mandatory payments.

In response to rising consumer basket value in monetary terms is constantly growing.

For the economic consequence of the enactment of a law guaranteeing deposits will be significant growth in most of these deposits. Currently, private deposits accounted for approximately 11% of the annual income of Russians (after taxes on other mandatory payments). But in the U.S. this figure is 55%. However, the U.S. does not figure – a private person to use other forms of savings than bank deposit (equities, bonds and stock mutual fund money market, etc.).

An indicator of the development of any society is the level of people’s lives, creating an enabling environment for personal development, maximizing the potential of Rights. The standard of living of the population – this level of wealth, consumption of goods and services, a set of conditions and indicators of the measure meet the basic necessities of life of people. Problems examine people’s living standards are relevant to all countries, regardless of socio-economic development of society.

Moreover, they are relevant to our country, under market reforms, involving the collapse of wealth, intense stratification of society between rich and poor, high levels of impoverishment of a large mass of the population. Carrying out effective social policies in these conditions should be based on knowledge of the processes occurring in the economy and social life.

In economically developed countries, a set of households for many years is an essential part of the national economic system, one of the main subjects of the economy, which represents the interests of the entire population and takes into account all processes of micro regulations and statistical reporting. Household is a supplier of economic resources and basic consumer unit. Income earned by households from the sale of resources used to meet the needs of targeted at maximizing the benefits.

The transition of the country to organize the economy on the principles of market economy with the perspectives of civilized development makes it an objective need for changes in the economic role of the family and household formation as the most important economic entity in the cycle of resources, goods and services. Specific problems are also in connection with the special role of the family household plots to ensure their vital needs. In this context, economic functions of household plots acquire their distinctive features, complementing the economies of families and households.

In the new political economy the status of families is being seen as the parallel in terms of survival in a situation of economic crisis, and in terms of their existence in the market. Without analyzing of families life, defining their role and place in the system of economic relations can not understand the many complex processes in the transitive economy.

The concept of “family” seems one of the easiest. The term is used every day, and everyone has some personal experience of family life. However, there are many disputes relating to the definition of family and how to distinguish the family from other types of lifestyles. The contributions to the development of these issues have made E. Giddens, W. Hood, J. Murdoch, J. Priestley, J. Thompson, P. Wilmot, M. Young.

However, the analysis of publications on the research suggests that the political-economic approach to these issues fully so far not been implemented.


Held David, Thompson John B., Social Theory of Modern Societies: Anthony Giddens and his Critics, Cambridge University Press (1990).

Becker Gary, Economic Theory, Transaction Publishers; 2 Enlarged Ed edition (2007).