Sunday, September 14, 2014

Spending: How it Can Help Boost Economy

How can spending boost an economy? Let's get back to basic.

Juana, the shirt and Bench Store

Let's say Juana bought a shirt at a local store called Bench. She wore it the next day. Since Juana is one of the popular girls at school, everybodys notice how gorgeous the new shirt was. So the girls asked her where on earth she got it from. That afternoon, the girls marched to the same store where Juana got her shirt, and bought the same exact shirt that Juana has!

Spending and Job Creation

Since Juana and several of the girls bought the shirt at Bench, the store benefited from the money they made on selling the items. Not only that, it keeps the business running. When business is up and running, jobs are being kept ( cashiers, sellslady, janitors, managers, etc.). What if Juana is uber famous and girls in her town saw her with the same shirt, then they ran and bought the exact same shirt at the exact same store?

Bench needs to make sure that the demands are all met. Maybe they have to hire more workers just to keep up with the demands, from buying the cloth and the thread to make the shirts, to hiring workers who will make the shirts.

See how spending can potentially lead to job creation?

Job Creation and Spending

When jobs are being created because of the the demand of the shirt-thanks to Juana, Bench pays the workers in the form of salary (bi-weekly or monthly). When salaries/wages are being paid to the workers, workers then spends it on goods and services (food, housing, utilities, etc.). When they spend- it can then potentially lead to job creation ( same story as Juana, only replacing Juana's name to "workers").

OFW Remittances and Spending

Ever wonder why OFWs are the country's hero? Because OFWs send money to the their family in the Philippines. The family of the OFW, who recieves the money, spends it in who knows what ( goods and services). And when they spend, you got to remember that it can keep businesses running which in turn can either keep or create jobs. When jobs are being keep or created, spending follows because people have wages to purchase goods and services.

Spending and GDP

70 percent of the gross domestic product (GDP) is composed of consumer spending. While some say it is not accurate and some say it is, no matter who you believe, the fact of the matter is, consumer spending is the largest component of GDP.

So, What's in it for Us?

Identifying where people spend their  money could give you an idea where to invest, be it in your own business or the stock market. Example: real state in the Philippines is booming, therefore, there are high demands for furniture makers, interior designers, architects, etc., and any business that deals with real state could also be a profitable business.

According to the reseach, millenials are mostly spending their money on travel, gadgets and houses. With this in mind, maybe you can formulate a business ideas or invest in a company that focuses on travel, gadgets or real state.

To all you spendthrift out there, remember:  you are our true heroes. Haha! Kidding! :)

This post is a newbie's attempt to understand the whole economy thingy. For detailed explanation, click here.


  1. Yup! Spending creates investor confidence. The market fluctuates based on consumer spending and company performance. Like Apple stock has a good run coz they produce products that people wants to pay for thus increasing demand and creating jobs. Same thing with Jollibee and SM. Economy is an interesting subject and they are all interconnected, like the global market, inflation, the principle of supply and demand, etc. Baligtad sa paniniwala nating mga kuripot ang pag gastos pero ang spending is what drives the economy :)

  2. That's why spending is good, too. Plus, spending is inevitable because we need to eat and buy things to survive. I say YES to wise spending because it helps the local economy and NO to mindless spending because it can ruin my finances. Haha. :)


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