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This blog post is going to discuss the flow of money within the Household and Non-Profit Institutions Serving Households (NPISH). Most articles you find talk very superficially about these accounts, as they are mandated to be user-friendly, but it is actually very interesting at a detailed level too, and we feel worth the effort to understand.
The analysis of National Accounts can be a very daunting task for a lay person; however, if we take the information step-by-step, using the Household and NPISH sector as an example, the accounts are actually quite easy to understand. So, to start off: ‘Household’ refers to private households, which include pension, provident and long-term insurance funds, as well as mom-and-pop businesses (called ‘non-incorporated business enterprises’). “NPISH” are organisations like churches, and sport clubs; really any establishment that renders social and community services to households. Now that we have established the sector we are working with, we can break the data down into three core groups, which everyone recognises: Income for households, Consumption for households, and the difference between the two: Savings. If you have this in mind, then the below shouldn’t be too involved to follow. We use 2015 current prices. |
Income for Households:
Production Account:
This account refers to any output minus input the mom-and-pop stores in the sector generate. The resulting figure is called value added. In 2015 value added at basic prices was R678 263 mill.
This account refers to any output minus input the mom-and-pop stores in the sector generate. The resulting figure is called value added. In 2015 value added at basic prices was R678 263 mill.
Generation of income account:
Unfortunately for the mom-and-pop stores, this R678 263 mill is not the take-home money for them. Things like salaries to workers, taxes etc. still need to be subtracted or added to the amount. Once this is done, they are left with a cool R485 160 mill. This is known as Gross operating surplus or mixed income.
Unfortunately for the mom-and-pop stores, this R678 263 mill is not the take-home money for them. Things like salaries to workers, taxes etc. still need to be subtracted or added to the amount. Once this is done, they are left with a cool R485 160 mill. This is known as Gross operating surplus or mixed income.
Allocation of primary income account:
So now we are done with the money coming from within the household sector itself. Next we add on any income from the rest of the economy. This would include most of us. All our salaries from jobs as accountants, nurses or teachers would be added here. In 2015, this figure was R1 865 847 mill. Net income from property held (lending or renting financial or natural resources) is also added. The addition of all these to the previous generation of income account amounts to a gross balance for primary income of R 2 598 448 mill.
So now we are done with the money coming from within the household sector itself. Next we add on any income from the rest of the economy. This would include most of us. All our salaries from jobs as accountants, nurses or teachers would be added here. In 2015, this figure was R1 865 847 mill. Net income from property held (lending or renting financial or natural resources) is also added. The addition of all these to the previous generation of income account amounts to a gross balance for primary income of R 2 598 448 mill.
Secondary distribution of income account:
But wait! These are not the only income streams for households. A large part also comes from transfers, like social benefits, non-life insurance claims and so on. These amounted to quite a substantial R616 510 mill in 2015. However, where there is give, there is also take, in the form of taxes and contributions paid, amounting to R790 899 mill that needs to be subtracted. This then completes our story of income generated within the household and NPISH sector. In 2015, a total of R2 424 059 mill was available as gross disposable income.
But wait! These are not the only income streams for households. A large part also comes from transfers, like social benefits, non-life insurance claims and so on. These amounted to quite a substantial R616 510 mill in 2015. However, where there is give, there is also take, in the form of taxes and contributions paid, amounting to R790 899 mill that needs to be subtracted. This then completes our story of income generated within the household and NPISH sector. In 2015, a total of R2 424 059 mill was available as gross disposable income.
Consumption for Households:
Use of disposable income account:
How to use the money? This account is where last stage balancing takes place (involving pension fund reserves and so on). After these adjustments, households had R2 434 574 mill available. Household spending is then subtracted (R2 428 813 mill), leaving gross savings of a sad R5 761 mill left for households and NPISH. Unfortunately, that is not where the story ends, because consumption of fixed capital (CFC) still needs to be deducted from the gross savings. CFC is deducted because it reflects the decline in the value of your home as a homeowner, and so it declines your value base. CFC was R60 776 mill in 2015.
How to use the money? This account is where last stage balancing takes place (involving pension fund reserves and so on). After these adjustments, households had R2 434 574 mill available. Household spending is then subtracted (R2 428 813 mill), leaving gross savings of a sad R5 761 mill left for households and NPISH. Unfortunately, that is not where the story ends, because consumption of fixed capital (CFC) still needs to be deducted from the gross savings. CFC is deducted because it reflects the decline in the value of your home as a homeowner, and so it declines your value base. CFC was R60 776 mill in 2015.
Savings for Households:
After decuting CFC above from gross savings it leaves net savings of, wait for it, -R55 015 mill in 2015!
So from an initial final disposable income of R 2 434 574 mill, households become negative savers to the tune of –R55 015 mill. Essentially South Africans are spending way more than what they earn. And most of that spending is not past savings being spent, its spending that is taking place on credit. As our credit market page shows. The use of credit in South Africa is ballooning and reaching dizzying heights.
So from an initial final disposable income of R 2 434 574 mill, households become negative savers to the tune of –R55 015 mill. Essentially South Africans are spending way more than what they earn. And most of that spending is not past savings being spent, its spending that is taking place on credit. As our credit market page shows. The use of credit in South Africa is ballooning and reaching dizzying heights.
And that is essentially the story of where money is made, used and saved in the sector. The exact same process, give or take a few differences in terminology etc., is used for the other sectors of the economy: financial corporations, non-financial corporations and general government. So if you could follow the flow of these accounts, then you have the accounts of the entire economy at your disposal!
Below a funnel chart graphically representing the accounts and flow of funds discussed above.