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