Types of family income

Types of family income There are three types of family income. Before we go into the details of different types of family income, let us understand what is money and its functions. Money is what money does. Two most important functions of money are: Serving as a medium of exchange, and Measurement of value Thus money is “anything which is generally acceptable in exchange of commodities and in terms of which the value of other commodities is determined”.

Importance of money Money serves as a medium of exchange, thus doing away with the problems of spending time for exchange to materialise. Money serves as a standard of value, i.e., a common denominator in terms of which the value of all other commodities is expressed. It works as a standard of deferred payments facilitating savings and investments, which are the basis for capital formation, and hence for better standard of living. Storage in terms of money is durable for long time periods, facilitating accumulation for investment in production and improved standard of living for the family.

Money Income Psychic Income Real Income (a) Money Income is the purc- hasing power in rupees and paisa that goes into the family treasury in a given period of time. It comes to the family in the form of wages, salary, bonus, commission, rent, dividends, interest, retirement income, royalties and any other allowances to any member of the family. Money income is converted into goods and services required for daily living, and often a part is diverted into savings for delayed use or for investment purposes. The frequency and pattern of flow of money income varies from family to family.

For example in rural areas agriculture is the main occupation. The income of a farmer is not regular but she/he earns money when she/he sells the crop which may be twice in a year–the rabi and the kharif crops. In contrast, a person having a job will have regular income every month. (b) Real Income is defined by economists as a flow of commodities and services available for satisfaction of human wants and needs over a given period of time.

This definition has three important points, namely: Real income is a flow of goods and services, it is not stagnant. It consists of goods and services which might or might not be available with money, e.g., produce from your own land, services of a household. There is a time period involved – it may be a month or a year. Real income is of two types- direct income and indirect income .

Direct Income – consists of those goods and services available to the family members without the use of money. For example, services rendered by family members, like cooking, laundering, stitching, maintaining kitchen garden, etc. A house which is fully paid for and community facilities like parks, roads, libraries also come under direct income. .

Indirect Income – those material goods and services which are available to the family only after some means of exchange (ordinarily money) has been obtained, e.g., use of money to buy good quality vegetables because it involves one’s skill and ability to select. (c) Psychic Income is the satisfaction that results from the ownership and utilisation of goods and services. It can also be defined as the satisfaction derived from real income. It is difficult to quantify psychic income in terms of rupees.

It is a form of hidden income. It is intangible and subjective and the most important in terms of quality of living. Identify all the sources of money income available to your family in a month.