HOUSEHOLDS INCOME AND CONSUMPTION BEHAVIOR IN OWERRI TOWN

HOUSEHOLDS INCOME AND CONSUMPTION BEHAVIOR IN OWERRI TOWN

This study aims to ascertain how households income level affects the consumption behavior in Owerri municipal.

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CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Income has been regarded as the most consumption demand determinant in every economy among others such as investment and government expenditure etc. the causal relationship that exists between income and consumption is said to be positive. This implies that a higher income level is said to be characterized by a high consumption level all things being equal and vice versa. Income distribution pattern affects the consumption demand level in the system. Change in income distribution pattern influences the aggregate demand of consumption especially if income recipients’ marginal propensity to consume (MPC) differs.

All most in every developing economy, consumption demand constitutes about 60 percent of their aggregate GDP and is mostly revealed the contribution of consumption that is associated with the level of aggregate demand. The consumption pattern also explains the welfare and poverty levels every nation is experiencing.

In the word of Demburg (1985), consumption is seen as an act of consuming goods and services to satisfy man’s innumerable needs. This covers the vital role of consumption in the welfare of the society. The total of consumption demand/expenditure on both durable and non-durable goods depicts the position of the economy generally.

Ohale and Onyema (2001) stated that consumption is the total demand of every individual of goods and services for satisfaction within a specific time frame. The pattern of individual spending is strictly characterized by complex and large interrelated sets of factors which include but not limited to gender, age, family size, current income pattern, etc.

On the total, household’s behaviors at the national level show the trend of consumption level and how the economy operates. The consumption behavior trend of household knowledge is adequately important in understanding the expenditure plan and income level in Nigeria. Most of the developing societies like Nigeria, the trend of consumption is mostly skewed to food and other basic needs. That is food constitutes the highest proportion of the total expenditure (NBS, 2010).

Nigeria is one of the countries in West Africa; she attained her independence in 1960 with high expectations for a society that could guarantee rapid economic, socio-political progress and an economy that would usher a moderate or high living standard to her citizens. Nigeria has put adequate effort into designing and actualizing appropriate economic objectives through the various National Development Plans.

Its government has undertaken serious measures in designing a plan to promote investments, social services, and infrastructural facilities to speed up the growth and development process. The oil boom in the period of 1970s produced not only profound changes in the earning and government revenue. It equally produced profound changes in consumption pattern through improving in investment and production of goods and services in the country and purely on her socio-culture values, political aspiration style of economic arrangement together with plans, policies, and programs that are paramount during the period for the course of developing and growing the economy.

The study of consumption expenditure is vital as it helps in decision making both in the short and long-run analyses by government, policymakers, individuals, firms, and other economic participants because of its roles in determining total output. In a precise example, in Nigeria, consumption has been rising with GDP in 1980, the GDP current market prices stood at N50846.6M with consumer demand having a share of 78.2 percent of the GDP value (CBN, 2016). As GDP raised to N173,243.9 million, N537,364.3 million, N3, 541.991.8 million, N12, 873, 642.2 and N45, 874, 099. 94 in the year 2000, 2005, 2010, 2015 and 2017 respectively. Consumption expenditure increased from N73, 562.6 million, N1,970,388, 2 million and 27, 448, 865, 17 respectively (CBN, 2017).

Consequently, during the first 2016 quarterly analysis, the nation’s Gross Domestic Product (GDP) grew to -0.36% (year-on-year) in real terms (NBS, 2016) while the consumption spending decrease to N10657885.32 million in the first quarter of 2016 from N11517019%(Trading Economics 2016).

Moreover, the household consumption samples in an economy dictates the relationship between income and consumption level in the society. A total study on the trend of consumption and income pattern will aid the economy in designing the required and needed plans to achieve tangible growth, stability employment of productive factors, and the desired aggregate income earning. As observed and explained, a particular reference can be assigned to Obasanjo’s regime that increased minimum wage through the Nigerian labor congress (NLC) agitation to N7,500.00 and N5,500 at federal and state levels respectively though some states did not meet up. Also, during president Goodluck Jonathan’s regime, between 2011 and 2015, the minimum wage was increased to N18,000.000. All these were purely to raise the consumption pattern of the Nigerian economy, through increased in consumption pattern and rise in income level were not in the same proportion.

From the foregoing, it seems that both the government and the households undertake one form of consumer demand or the other. But for precision and better understanding, the study seeks to analyze empirically the impact of household’s income on consumption behavior in Owerri municipal LGA of Imo State Nigeria.

1.2 Statement of the Problem

Consumption pattern of every individual or household combined and relate with the quantities, qualities, and acts which characterized a country or group to consume goods for betterment, comfort, and survival (National Bureau of Statistics (NBS), 2010). The Keynesians consumption theory opines that disposable income determines the aggregate consumption level and pattern (Keynes, 1936). Seld (2011) insisted that the real factor that influences consumption demand is economic and demographic factors of households. Those demographic factors are age, educational level, size of the family, occupation among others and the economic factors are income level and prices of related goods and services.

Studies have shown that poverty in developing countries like Nigeria takes various faces like low nutritional status, inadequate educational background, and drastic decline in expenditure on social services, the high proportion of expenditure on food, lack of rightful savings attitude, undesirable level of investment and production outcomes.

Household income determines the household pattern of consumer demand and the past and recent expenditure on goods and services are not on the expected level in Nigeria compared to more developed economy consumption expenditure. Present, the level of consumption has been worsening and threatened by the household income and other forms of problems like rising in inflation level, economic downturn, lacks of jobs and high level of retrenchment and priority concerns among others (Acha 2013).

In 2017, Nigeria’s economy experienced a downturn trend which resulted in a drastic decline in the aggregate level of demand (consumption), poverty, an increase in the unemployment rate, investment fall drastically and a steady rise in the general price of goods and services over time. It is in this manner and background that we stand to ascertain the effect of households’ income on the consumption behavior in Owerri municipal of Imo state.

1.3   Aim and Objectives of the Study

This study aims to ascertain how income level affects the consumption behaviors in Owerri municipal. In line with the overall aim, the specific objectives are to;

1. ascertain the income level and its distribution amongst household members of Owerri municipal;
2. understand the consumption pattern of households in Owerri municipal;
3. examine how income level affect consumer behavior in Owerri municipal, and
4. analyze the factors that impact on consumption behavior in Owerri Municipal.

1.4   Research Questions

The study’s objective is to resolve the following questions:

1. What is income level and its distribution among household members in Owerri Municipal?
2. What is the consumption pattern of households in Owerri Municipal?
3. How does income level affect the consumption behavior of households in Owerri Municipal?
4. What factors affect consumer behavior in Owerri Municipal?

1.5 Hypothesis

H0: the households’ income has no statistical significance on the consumption pattern of Owerri Municipal.

1.6 Scope of the Study

The overall focus of this study is to intensively examine the cordial relationship that exists between income and consumption of household members in Owerri municipal. The basic rationale for considering Owerri municipality is purposive, because of its cosmopolitan nature; eliminated language barrier that could have erupted between the interviewer (research) and respondents.

This work will be delimited to only household members in Owerri municipality spread across five (5) villages in Owerri municipality namely Ama Awana, Umuodu, Umu Onyeche, Umu Ororonjo, and Umu Online.

1.7 Significance of the Study

This study is structured in a way that will benefit the government, policymakers, firms, and households and also hopes that its contribution will add particularly to academics by adding value to the existing knowledge on the relevant literature in this field of study.

The gathered data that will serve for the analysis of this study and recommendations of this study as well will to a great point positioned government and policymakers on the direction they need to follow when designing the needed policies and programs of the economy about consumption and income. This is so, as it will show a clearer picture of households’ income and consumption behavior in Owerri municipal especially and Nigeria in general.

1.8 Organization of the Study

This study is structured in five various complementary chapters. The first chapter illustrates and introduces the background to the study with a statement of the problem, objective, research questions and hypothesis, scope and limitations, significance and organization of the study as the main sub-headings of chapter one. The second chapter revealed the relevant literature which includes theories, concepts, empirical works and evaluation of literature reviewed.

Chapter three ushered the method of study. It mentioned the research design, method of data collection, population, sample size, research instrument, validity, reliability, etc.

Chapter four comprises of presentation and interpretation of data with a discussion of major findings while chapter five looks at the summary, conclusion, and recommendations.