IGCSE Economics 0455 – Households: Influence of Culture on Spending, Saving and Borrowing
Microeconomic Decision‑makers: Households
Objective
To understand how culture influences the way households decide to spend, save and borrow.
1. What is Culture?
Culture is the set of shared values, beliefs, customs, traditions and behaviours that are passed down from one generation to the next within a society or community. It shapes attitudes towards money, risk and the future.
2. Ways Culture Affects Household Decisions
Spending patterns – preferences for certain goods and services (e.g., food, clothing, entertainment) are often culturally determined.
Saving habits – cultural attitudes towards thrift, security and the future influence how much households set aside.
Borrowing behaviour – norms about debt, interest and the acceptability of borrowing differ across cultures.
3. Cultural Influences on Spending
Examples of cultural factors that shape consumption:
Religious festivals (e.g., Ramadan, Diwali) that trigger higher expenditure on food, clothing and gifts.
Social status symbols – in some cultures, owning a car or a large house is a sign of prestige, leading to higher discretionary spending.
Traditional diets – cultural cuisine influences the proportion of income spent on food.
4. Cultural Influences on Saving
Key cultural determinants of saving rates:
Collectivist societies often emphasise family support, encouraging households to save for future family needs (e.g., education, weddings).
Individualist societies may focus on personal financial independence, leading to higher use of formal savings accounts and investment products.
Religious teachings – for example, Islamic prohibitions on interest (riba) promote saving in interest‑free accounts or assets.
5. Cultural Influences on Borrowing
Borrowing is viewed differently across cultures:
In cultures where debt is stigmatised, households may avoid loans and rely on informal saving groups (e.g., “tontines” or “rotating savings and credit associations”).
Where credit is seen as a tool for upward mobility, households are more likely to use mortgages, credit cards and personal loans.
Community‑based lending – some cultures have strong extended‑family networks that provide interest‑free loans.
6. Illustrative Case Study
Case: Household A – East Asian culture
Household A places a high value on education and family honour. As a result:
They allocate a larger share of income to education‑related spending.
They maintain a high personal saving rate (often >30 % of disposable income) to fund children’s university fees.
They are cautious about borrowing; when they do, they prefer low‑interest, long‑term mortgages rather than credit cards.
7. Summary Table – Cultural Factors and Their Impact
Aspect of Culture
Typical Influence on Spending
Typical Influence on Saving
Typical Influence on Borrowing
Religious festivals
Increased seasonal expenditure on food, gifts, clothing
Often offset by pre‑festival saving
Short‑term credit may be used to smooth festival spending
Collectivist values
Spending directed toward family events and communal obligations
Higher household saving to support extended family
Preference for informal, interest‑free loans within the community
Individualist values
Greater emphasis on personal consumption and status goods
Saving for personal goals (retirement, investment)
Greater use of formal credit markets (credit cards, mortgages)
Religious teachings on interest
May limit consumption financed by interest‑bearing credit
Encourages saving in non‑interest accounts or tangible assets
Preference for interest‑free financing or profit‑sharing arrangements
8. Potential Exam Questions
Explain how cultural attitudes towards debt can affect a household’s decision to borrow.
Using a diagram, illustrate how a cultural festival might shift a household’s budget constraint.
Compare the saving behaviour of households in a collectivist society with those in an individualist society.
Suggested diagram: Budget constraint shift during a cultural festival – show original budget line, increased expenditure on festival goods, and possible borrowing to finance the shift.
9. Key Take‑aways
Culture shapes preferences, risk attitudes and the perceived acceptability of debt.
Understanding cultural influences helps explain variations in household spending, saving and borrowing across different societies.
Exam candidates should be able to link cultural concepts to economic models such as the budget constraint and saving functions.