Integrated Cross Disciplinary Approach to Household Expenditure Management

Abstract

Purpose of the article The study aims at: a) carrying out a detailed historic analysis of various theories developed within household economics and personal finance; b) assessing their applicability and efficiency in solving the household expenditure management problems; c) offering alternative approach to expenditure management, which reduces the influence of subjective factors compromising quality of decision making within expenditure management. Methodology/methods. Cross-disciplinary approach integrating psychology and economics, Maslow theory of needs, vector algebra, utility optimization, case study based testing. Scientific aim. To justify theoretically the principles enabling development of alternative approach to household expenditure management based on decomposition of the aggregate value of goods/services into components, each reflecting a certain level of Maslow’s pyramid of needs; quantitatively evaluate and compare the value components representing different levels of the pyramid and estimate the respective cost of consumer’s needs. Findings. The decomposed value components better than the aggregate value reflect the ability of good/service to satisfy various complex needs of the consumer, both basic (physiological) and those purely psychological from higher stages of the pyramid of needs, e.g. esteem and self-actualization. Decomposition gives the possibility to quantitatively evaluate and compare them. Results of case studies carried out have proved validity of the approach and the potential in being applied as a planning tool in managing household expenditure. Conclusions. Decryption of the aggregate value of goods and services by using decomposition creates a platform for development alternative approach to expenditure management in households, less dependant on subjective, intuition based decisions. It could yield to reduction of spontaneous spending, give the possibility to harmonize not only total/aggregate consumption with the income, but also to find a balance between items in the bunch of products/services purchased, thus preventing an unbalanced (excessive or insufficient) allocation of funds. DOI: http://dx.doi.org/10.5755/j01.ee.26.5.13066