Family decisions

Published in El Pais, December 7th 2019.

For most families in the world, it is always a challenge to get their income to cover all the expenses of each month. It is easy to say in my family economics classes that you have to save for retirement, emergencies or some other dream. Some economists say we have to save 10% of our income. Several times my students have complained, saying that saving is impossible. Their income is barely enough for the month. And I think they are absolutely right. They made me think.

Maybe we don’t have to start with 10% but start reflecting on how we make decisions in the family about money. On the one hand, we have our income, and on the other hand our basic expenses (necessary) and luxury expenses. The remaining balance will be savings. However, it has been shown that it is easier to save when the family knows what it does for. For example, if a person is completely tired of working for a boss and wants to start their own business, they will be motivated to save on vacations, clothes, in order to save quickly and achieve their dreams. Or save for a new car or a spectacular vacation. In addition, if the goal is clear, the whole family can support and it will be even easier to save. In business administration, it is called strategy, which is chosen under a framework and conditions.

It is easier for a father or mother to deny a purchase of a toy, and for the child to accept it when everyone knows why they are saving. Or, a couple can endure living without a car, it that means they can buy their own house sooner. For young people, the decision to go out with their friends for a drink or study to pass the subject and graduate faster is perhaps a more obvious decision. As in business administration, family management also needs a method to optimize their decisions. For companies it is the utility or current value. For the family they would be welfare units. Are we willing to not have a car and work hard to have a house?

It may not be easy to accept the sacrifices, but if we have clear objectives, it will be easier.