Income and Disposable Income EssayIncome will mean cash income before taxes, and will include government transfer payments such as unemployment insurance benefits, family allowance payments, pensions, welfare assistance, etc.Disposable income specifically focuses on the amount of income available for private consumption and spending. Disposable income takes into consideration the reality that take-home pay is heavily influenced by not only gross income, but also by factors such as government transfer levels, taxation levels, and inflation.Disposable Income is defined in two ways:* Income after federal and provincial income taxes* Income after taxes, employment insurance and Canada Pension PlanDiscretionary Income is Disposable Income after deductions for basic necessities such as food, clothing, shelter, transportation, healthcare, personal care, etc. Life-Cycle State people change the goods and services they buy over their lifetimes. Buying is also shaped by the stage of the family life cycle-the stages through which families might pass as they mature over time. Marketers often define their target markets in terms of life-cycle stage and develop appropriate products and marketing plans.Described in the following graph, on average, real disposable income has grown at a very slow rate of 0.05% from 1980 to 1998. This varies from 0.32% for a family of 2 parents with children, 0.14% for economic families of 2 persons or more, 0.09% for elderly families to 0.31% for lone parent families. These figures have improved over the last 3 years. In 2000, real disposable income per capita grew 2.7%, its strongest growth rate in over a decade.The above chart shows the percentage change in inflation-adjusted incomes of families with children for the lowest 5th of families to those in the top 5th of family incomes from the late 1970s to 1997.It can be seen that for the lowest 5th of families real incomes fell 21% during past 2 decades, while incomes for the highest 5th increased 30%. Thats quite a swing.Further, the chart shows for the middle 5th of family incomes their current inflation-adjusted income is about 3% less than 2 decades ago. Thats pure and simple. No wonder family saving fell while household debt ratios soared. Look again at this chart. The top family earners increased income 30% above inflation in those 2 decades. But, if recognize that 30% real income growth over 2 decades is but 1.16% average per year compounded above inflation, its not that great, especially compared to all average family incomes increasing at an annual rate of 3-4% above inflation prior to 1970, most with one wage-earner per family.In other words, this chart suggested that the top family earners since the 1970s made out worse than did all average family incomes prior to 1970. Of course the poorest 5th saw their real family income drop 21% past 21 years or about 1.12% per year below inflation rates. This shows how dramatic long-term implications can be, just 2% per year separating top and lower earners and how much poorer is total family income performance now compared to before.The marketers can use these statistics to estimate the future trend of people buying behavior. In order to develop new technologies or sell strategies, these statistics would help marketer to decide what they have to change to gain more profits.
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