Chapter 5: Family Income, Wealth, INCOME DISTRIBUTION & POVERTY BY : DR. ZURONI MD. JUSOH Department of Resource Management & Consumer Studies

(cont’d) Outline: Income concept Definitions Type of income Factors influencing the level of income. Property/Wealth Definitions Property and Liability Income distribution Lorenz curve Gini coefficient Poverty Who are the poor Programs’ helping

(cont’d)  Income definition: Acceptance in the form of cash & non- permanent money & always received by households in a frequent time. (Australian Bureau of Statistics (1995). Eg: from employment, business, rental. The amount of money or goods and services received in an individual in a certain period of time. Usually the result of the contribution of market activity.

(cont’d)  How to measure income? Generally it is measured in money & the flow of economic goods available from production activities.  Types of income: Money Income Real Income Psychic Income Family income Disposable income

(cont’d)  Money Income  The flow of purchasing power that can be expressed in terms of community currency received. All forms of income received in the form of money, such as :  Wages & salaries.  profit, commission, interest / interest, dividends, royalties (patent /copyright).  Rent  Gift  Transfer payments (pensions). Used as a guide. :  Consumer purchasing power  Quality of life

(cont’d)  Various forms of variable amounts of money in research. Earnings before vs. after tax The per capita income Fixed income

(cont’d)  Real income  The flow of economic goods and services resulting from the productive work for a certain period that can meet the needs and desires of human. Income is measured using all forms of usefulness of the value of goods and services received by families. A.k.a Money value of consumption BUT, it’s quite difficult to measure accurately

Cont’d  2 types of real income  Direct income  Indirect income

Cont’d  Direct income  Goods / services acquired by family not in a form of money.  E.g. vegetables planting, providing cooking, cleaning houses, washing cars, use of durable goods.  Treatment facilities, playground  Can reduce family expenses

Cont’d  Indirect Income  Goods / services offered by the family in exchange for money as an intermediate.  Eg. purchase of food items / needs, child care wages, medical service, car wash wages

(cont’d)  Psychic income  dissatisfaction received by households.  Feelings get money  Attitude on the adequacy of money  The attitude of goods / services Non-monetary benefits derived from employment Example:  Satisfaction, status or prestige derived from the my pleasure to work in certain environments. The amount depends on the value of psychic income & standard

Cont’d  Family income  Money received in the purchasing power of a certain period + wealth & services produced by a family member.  Eg service-durable goods, the value of social security, pension payments, provided the value of health, recreation, education, the value of gifts received

Cont’d  Disposable Income  Earned income after deducting income tax on individuals.

(cont’d)  Factors Influencing Income Fund: Life cycle  The middle age group - the productive than the young and old.  Contribute a large share of income Household involvement in market activities  Many working households - a higher income. The level of household education  Higher education - higher income

Cont’d  Age / experience / hours of working  New participate - low income  Long time involved (mature) a lot of experience - high income (promoted)  ownership of property  Houses, land - income (rental)  Financial assets (stocks, shares, insurance, bonds) - could yield

Factors influencing the value of money income  Preferred goods/facilities, procurement of goods / commonly used by families  Eg ready-made clothing or cloth booking.  Accessibility of goods needed by the family  Eg medical treatment, shops nearby  Family size using family income  Large family, the smaller amounts of money  Family incomes compared to the community  High income - the higher money income  Price items you are purchasing for use in the family  Price low - high money value of income (high satisfaction)  Whether it can be changed and replace money income with income from other sources.  Families that produce their own goods and services - the higher amounts of money value

Property and wealth  Property Entity owned / purchased by households with interest earned by the owners through ownership / consumption. Eg house, car, furniture, money, stocks, etc.. Property Classification Financial assets Fixed assets

Cont’d  Financial asset  High value - have a high financial liquidity  Can accommodate a large expenditure  Eg: buying a house  Fixed asset  Affect future spending because of low liquidity.  Difficult to replace with cash exchanged in a short period  Eg: house, land

Wealth  Household net worth less the value of consumer durables goods  Total value of assets owned by the family less total liabilities (debt)  Money income increase - wealth increase  Purchase of assets whose values ​​ increase - wealth increase  repay the debt - increase in net value & also increase the value of household wealth.

The concept of wide income  Using the time consumption data by households  Involves four concepts of income:  Market income: income from wages + business income + capital & interest income  The calculated income: market income + income + goods + transfer income + value of the house occupied by small- scale income  Real Income 1: income calculated + value of homework  Real Income 11: Real Income 1 + the value of real income at home cooking & child care

Factors Influencing Money Income  Preferred items are easily available  Family size  Family income compared with the community  Price of goods  Whether it money income can exchange with income from other sources.

Distribution of Income  It shows how in a country's wealth is shared by the people.  Measured by:  The average (mean) income  Middle-income (median)  The highest income (maximum) compared with the lowest income (min)  Lorenz curve - cumulative measurement  Gini coefficient - compare the actual income distribution with equal incomes.

Cont. To view the distribution of household income, the income of all residents are ordered from lowest to highest Order income is usually divided into five parts, five quintile (20%): lowest 20%, 20% second- lowest, % highest (quintile = 1 / 5) Aggregated quantities commensurate income & can be calculated% of income for the average monthly income earned by each group; the 20% highest (richest) to obtain% highest income Malaysia, 1999: 20% of average monthly income of the richest = RM6, 268; 40% lowest = RM865

Lorenz curve  Percent of total income received by percentage of income recipients when ordered from small to big.  Shows the income distribution curve  Plotted% cumulative income (earned by each family quintile % of income under which) the% cumulative family  Curve 45 0 is the perfect income distribution:% cumulative income =% cumulative% of the population is increasing at the rate the same for each quintile population.

Cont’d

Gini coefficient The Gini coefficient is the area between the line of perfect equality and the observed Lorenz curve, as a percentage of the area between the line of perfect equality and the line of perfect inequality. The higher the coefficient, the more unequal the distribution is.Gini coefficient

Poverty  Who are the poor people  Poverty among young families – highest poverty where the head of household less/below 25 years old.  Poverty and public choice – public policies depend very much on the political power of the interest groups. Eg. The elderly became strong political force (55 and above)

Program Helping The Poor People  Social insurance  Income assistance  Housing assistance – subsidized low income housing, school lunch program  Food stamps - vouchers

Why Incomes Difference Working difference Education Job experience Ability Age Poverty Income Level (PLI) “An income that is necessary to buy a group of foods that would meet the nutritional needs of the members of a household. The income is also to meet other basic necessities such as clothing, rent, fuel and utilities, transport and communications, medical expenses, education and recreation.” 1988 – RM384 with 5 household 2000 – RM 425 with 5 household, 1.6 inflation rate – RM800 with 5 h/h, 3.8% (228,400 h/h poor) from total population - Peninsula RM763 Sabah RM1048 Sarawak RM912

Conclusion  There are three types of income - money, family and psychic.  Lorenz curve is one way to measure income distribution.  Poverty - poor categories, programs to eradicate poverty.

Thank you