The current account records all the money that flows in and out of a country in the form of trade, income and transfers. It is usually written as a balance: surplus if more money comes in than goes out, deficit if the opposite.
Secondary income is the money that moves across borders without being tied to buying or selling goods. Think of it as a family reunion across countries where relatives send money to each other.
Exam tip: Secondary income is usually a small part of the total current account. In many exam questions it is omitted from the simple formula, but remember to write SI if the question asks for it.
Example: The UK sends £500 m in gifts to a friend in Spain. This is counted as secondary income and added to the current account balance.
Analogy: Imagine a family reunion. The gifts and loans exchanged between relatives are like secondary income – they are not part of the family’s trade of goods, but they still move money across borders.
| Category | Example | Recorded as |
|---|---|---|
| Gifts | Money sent to a relative abroad | + (inflow) |
| Loans | Bank loan to a foreign company | + (inflow) |
| Remittances | Foreign workers sending money home | + (inflow) |
| Wages paid abroad | UK company paying a German employee | - (outflow) |
| Investment income | Dividends from foreign shares | + (inflow) |
CA = X - M + NI + SI (current account balance).💡 Remember: Secondary income is usually a small part of the overall current account but it can be significant for countries that rely heavily on remittances.