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NATIONAL ECONOMICS UNIVERSITY INSTITUTE OF PUBLIC POLICY AND MANAGEMENT ERASMUS UNIVERSITY ROTTERDAM INTERNATIONAL INSTITUTE OF SOCIAL STUDIES VIETNAM NETHERLANDS MASTER’S PROGRAM IN DEVELOPMENT ECONO[.]
NATIONAL ECONOMICS UNIVERSITY ERASMUS UNIVERSITY ROTTERDAM INSTITUTE OF PUBLIC POLICY AND MANAGEMENT INTERNATIONAL INSTITUTE OF SOCIAL STUDIES VIETNAM-NETHERLANDS MASTER’S PROGRAM IN DEVELOPMENT ECONOMICS (MDE) THESIS SUMMARY THE IMPACT OF FAMILY SIZE ON CONSUMPTION AND SAVING BEHAVIORS: EVIDENCE FROM VIETNAM Supervisor 1: Dr Nguyen Viet Cuong Supervisor 2: Dr Pham Thu Phuong Student: Nguyen Thu Hoai Class: MDE-18 A thesis submitted for the Master Degree in Development Economics at the Institute of Public Policy and Management (IPPM) of National Economics University, Vietnam Hanoi, November 2014 Contents ABSTRACT 1.1 Research rationales 1.2 General objectives 1.3 Specific objectives 10 1.4 Thesis structures 11 1.5 Economic theories 13 1.6 The features of family size and family budget structures in Vietnam from 2004 to 2008 16 1.7 Methodology and regression result .22 1.8 Conclusions and recommendations 27 References .29 ABSTRACT In the first decade of the 21st century, the size of households in Vietnam has markedly changed The number of members in the household decreased, inducing two possibilities: (1) reduction by one (or more) financially dependent member(s) of the household; (2) loss of one (or more) financial resource(s) contributing to the family budget This change may affect the structure of financial resource allocation among members of the household The affect is positive if the change makes the living conditions of the members better And vice versa, the effect is negative when it reduces the benefits of membership in meeting individual needs Theory of Family Life Cycle shows that household size peaked when the head of household is at 45 and declined thereafter Household heads in Vietnam played an important role in funding the family budget and decide the existence of households in Vietnam When the size of households in Vietnam changed, the composition of spending and savings varied in the different stages of the family life cycle This will affect the stability and development of the organization of households The dependent members in households including children, pregnant women, the elderly and the disabled are those who will be affected the most Therefore, there is a need for macroeconomic policy makers to launch financial assistance, such as health care, income support for the elderly and free tuition for children in the case of changing household size (Keywords: family size, per capita expenditure, per capita saving, family budget) 1.1 Research rationales Family is the initial and base institute of social structure In families, all members live together, share their foods and support each other in family work and others (Family as defined by the U.S Census Bureau) The relation in-law affiliate members in family Such additional relationships as sisters, brother in-law, offspring, adopted children lead to a larger family scale Besides, members in family have consanguinity, same blood identity source (Family as defined by a1970s Long Island, New York Housing code) Each member plays her/his separate role and position in the family structure, in which the head of the family plays an important role in managing family The head contributes most of the family’s budget and is responsible for every matter of his/her family The decisions of the head in marriage, giving birth, divorce and adoption and so on, may cause the addition or loss of members in his/her family (John Bongaarts, 2001, p.2-3.; Kristin J Kleinjans, 2010, p 2-8) Family size refers to the number of family members living together in a family An oriented family consists of a father and a mother (Family as defined by Statistics Canada) After several years, the oriented family gets their new member, such as their sons and daughters This model of oriented family is called a nuclear family There are some larger families with more than two generations which are called extended families In the extended family, there are grandfathers, grandmothers, the parents, sons and daughters (U.S Supreme Court, Three view of Family) Families in different areas have the different sizes Because of different traditional culture practices, the birth rate differs from area to area Average family size in developed Western countries ranges from 2.3 to 31, meanwhile developing countries around 3.5 – 3.8 The average family size also changes time to time In the United State, the average of family size was about 4.11 in 1930, but fell to 2.57 in 20042 The average age of getting marriage for America males ranges from 24.3 in 1930 to 26.8 in 2000 One of the explanations for the marriage age changes is pressure of career, longer education and awareness of higher family responsibilities (Jeannette Bayisenge, 2009; Paul Taylor, Cary Funk & April Clark, 2007, p 5; Alexandra Beauregard, 2008, p 1-3) Family size has a relationship with economic growth (Mohammad Afzal, 2009, p 3-4) Engels’s principle “the fact that each adult can produce more than he himself needs – a fact without which mankind could not multiply, indeed could not even exist; if it were not so how could those still growing up live?” (Frederick Engels, 1843) The young labor force plays a key factor in economic growth It is not only an essential labor supplier for production, but it is also a potential market for consumption Economic growth has changed the life of families, such as higher wages, better consumption During “the Golden Population Structure” period, Vietnam has attracted foreign investment by cheap labor force (VOV new, 2011) All the Vietnamese families are able to get advantages from this period, which includes Family’s income, consumption and saving (QDND Newspaper online, 2011) However, economic growth has benefited various families differently, with poverty increasingly concentrated among Minority people, mountainous and disadvantaged areas Average size of household in developed countries in late 1990s CountryFamily sizeCountryFamily sizeCountryFamily sizeCountryFamily sizeCountryFamily sizeAustralia2.6Canada2.6France2.5Japan2.8Switzerland2.3Austria2.5Denmark2.2Germany2.2Netherlands2.3United Kingdom2.4Belgium2.4Finland2.5Italy2.7Norway2.2United State2.6 Average population per household in America 1930 -2004 Year1930194019501960197019801990200020 Family size4.113.673.373.353.142.762.632.622.57 Some studies have shown that these areas have had a high fertility rate and large family sizes The number of members in the Vietnamese household has recently decreased, inducing two possibilities: (1) reduction by one (or more) financially dependent member(s) of the household; (2) loss of one (or more) financial resource(s) contributing to the family budget This change may affect the structure of financial resource allocation among members of the household The affect is positive if the change makes the living conditions of the members better And vice versa, the effect is negative when it reduces the benefits of membership in meeting individual needsThis thesis focuses on the impact of the changes in family size on the household’s consumption and saving in Vietnam According to Family Life – cycle theory 3, each stage of family life cycle, the number of family members rises/or falls accordance with the Head’s age of marriage, giving birth, retirement The main purposes of the thesis are to clarify points as follow: - The impacts of family size to household’s expenditure - The impacts of family size to household’s saving In the thesis we also allocate the changes of family size in two groups as follows: Their classification table lists six stages of the family life cycle: Leaving home: single young adults The joining of families through marriage: the new couple Families with young children Families with adolescents Launching children and moving on Families in later life In the first group, the research focuses on a nuclear and extended family, in which a couple is permitted to get marriage according to Vietnamese Youth report in 2009 (22 years old) 4, age range for giving birth (22 - 44 years old) In this period (The age of the head range from 22 – 44), the family size increases as women are at giving birth age It is called as expanding group (Under 44 Group) Second stage, (The age of the head range from 45 and more), the family size used to reduce due to all young members leaving the oriented family and joining a new one (Vietnam Annual Population Report in 2009)6 As the age of the head over 60, the structure of basic family is impacted by retirement Law, Elder health care problems and so on Family size reduces gradually until family end (Vietnam Annual Population Report in 2009) It is called as declining group (Above 45 Group) 1.2 General objectives Vietnam's economy has flourished after a prolonged stagnation Economic development has created many changes in the lifestyle of people in Vietnam Children, women, the elderly are the foreground According to the report "Vietnamese Youth”, Summary of statistical indicators from the population and housing census Vietnam 2009 shows: The average age of first marriage of Women is 22.8 and the Men is 26.2 According to the report “Vietnamese Youth”, Summary of statistical indicators from the population and housing census Vietnam 2009 shows: Age-specific fertility rate by age: from 20 to 39 accounted for 91.4% According to the report "Overview of elderly care policies to adapt to the changing age structure of Vietnam" in 2009 + Age capable of economic independence: 25 - 60 + The average birth rate: 2.07 According to the report "Overview of elderly care policies to adapt to the changing age structure of Vietnam" in 2009 + Life expectancy: 72.2 years objects of government policies Education, health care is the specific policies to show committed humanity during in the strategies of Vietnamese government Downward birth-rate changes are the reason for smaller size of households The number of household members in Vietnam now has reduced compared with the previous years This study aimed to re-assess changes in spending and saving in households affected by household size, based on the Family Life – cycle theory to clarify social and economic issues in Vietnam The contributions of the paper include: Firstly, the paper explains the change in household size, household budget surveyed in the past time, specifically: household size by regions, average spending and savings per person; the relationship between the changes in spending and saving with the changes in household size In particular, the paper emphasize the importance of understanding how welfare of each household member has changed when household size changes Small-scale family members have better access to personal development chances; for example: children can attend international school, elderly people can get health care services at home, other members can enjoy entertainments etc To deal with the fluctuations, the state budget plays an important role in adjusting the education and health care policies in order to create prosperity of the household Second, in addition to the inherence from researches on changes in household size with the economic issues of households such as food and energy, this paper confirms the need for changes in the economic and social policies of the country The changes in the quality of the individual needs of household today are related to changes in household size The product of household consumption not only satisfies the fundamental need of “eating full and wearing warm”, but also aims toward the beauty and deliciousness Economic development should be focused on those changed needs and economic policies must be developed to target them Finally, the article attempts to convey the message of sustainable development in the policies of social development in Vietnam Changing the perception of human development is not just the responsibility of individuals, or household, but also the whole society Household size changes can induce both new development opportunities and new threats The society will have opportunities to evolve as individuals are comprehensively developed In order to achieve that goal, there is a need to strengthen accumulation of the whole society, households and individuals so that individual in society can seize the coming opportunities to enjoy the development process Households saving and investment bring happiness to each members of the household 1.3 Specific objectives Research objectives The main objective of the thesis is to measure the impacts of family size on per capita household saving and per capita household expenditure This paper will help Vietnam’s policy makers to improve their current policies, such as education, pension and health care policies Research questions: - To what extent does the family size affect expenditure pattern of families in Vietnam? - To what extent does the family size affect saving behaviors of families in Vietnam? - Does the relation between family size and family expenditure and save vary across the age of household heads? - What are policy implications to improve household welfare in Vietnam? Hypotheses The study of the impact of family size for decisions about spending, saving will clarify the points as follow: Under 44 Group: Head of household from 22-44 years old When family size increases, both expenditure per capita and saving per capita decrease Above 45 Group: Head of household above 45 The decrease of family size causes on increase in household savings or expenditure per capita Diagram 1: Family budget and Family life cycle theory 10 Source: Estimation from the 2004 VHLSS The differences happened in nearly every characteristic, from rural to urban, so on In urban areas and poor-households, family size seems to be reduced a less This means that the population policy of Vietnamese government has achieved some good results The remarkable achievement is the gaining of gender equality Vietnamese families with fewer children have taken place both in rural and urban areas The decrease in birth rates helps women, who are in fertility aged, to have more opportunities to participate in social activities In addition, Vietnamese women may attend skills class, economic development courses As a result, the family income is improved significantly Furthermore, with one or two children in family programs, the children are better cared for and have many chances to get higher education Table 4: The average of family size and different head education in 2004, 2006, 2008 Under 44 group Above 45 group Head education 2004 2006 2008 2004 2006 2008 Technical degree 4.4 4.33 4.18 3.95 4.39 4.34 Post seconday 3.89 4.43 3.63 4.16 4.16 Upper-secondary 4.26 4.31 4.26 4.43 4.93 4.86 Lower-secondary 4.36 4.58 4.54 4.14 4.32 4.48 Primary 4.64 4.51 4.66 4.33 4.19 3.81 < Primary 4.98 4.63 4.16 4.01 4.04 3.78 Total 4.49 4.49 4.45 4.26 4.11 3.92 Source: Estimation from the 2004,2006,2008 VHLSS 18 The division of the age of householders showed the difference in job status The number of householders under 44 with unskilled work is more than the householders above 44 However, the change is opposite with the scientific works (Professional/ technicians) While the number of householders doing scientific research works of the group under 44 decreased through three years 2004, 2006, 2008, those of group above 45 increased Level and experience factors seem to make change in householder’s job Table 5: The average of family size and different occupations in 2004, 2006, 2008 Under 44 Occupation Above 45 2004 2006 2008 2004 2006 2008 4.75 4.73 4.61 4.29 4.08 4.07 3.82 4.24 3.85 4.15 4.42 3.39 4.54 4.25 4.11 3.80 4.00 4.12 4.10 3.00 4.50 4.10 4.03 3.49 4.33 4.12 4.08 4.10 4.00 4.06 Machine Operators Unskilled Workers 4.33 4.16 4.38 4.40 4.26 4.28 4.23 4.43 4.17 4.33 4.12 3.92 Total 4.51 4.49 4.41 4.24 4.10 3.95 Agriculture / Forestry / Fishery Clerks / Service Workers Leaders/ Managers Not working Professionals/ Technicians Skilled Workers/ Source: Estimation from the 2004,2006,2008 VHLSS 19 Considering the change in expenditure, income and saving with geographical, economical, social characteristics Expenditure, income and saving of household changed according to geographical, economical and social characteristics There is a gap value of average consumption, income saving per family member between areas, householder’s sex and so on Most family who live in urban, earn much more than the families in rural areas Besides, nonpoor family members have nearly double the income value compared with the poor family members Meanwhile, the female’s family has a little higher income than male’s family has Table 2: Average income, expenditure, saving value with different characteristics 2004 2006 Per capita expenditure (thousand VND) Per capita income (thousand VND) Per capita Saving (thousand VND) Rural 6,672 4,046 2,571 Urban 7,323 5,444 3,287 Male 6,885 4,148 2,628 Female 6,332 4,835 3,062 Poor 6,608 2,510 775 Non-poor 6,901 4,848 3,244 Total 6,838 4,299 2,722 Rural 6,718 5,117 3,504 Urban 6,214 5,936 2,633 Male 7,001 5,158 3,454 Female 6,038 5,532 2,837 Poor Non-poor 7,004 6,367 2,982 5,765 1,435 3,668 Total 6,678 5,231 3,320 20 ... population policy of Vietnamese government has achieved some good results The remarkable achievement is the gaining of gender equality Vietnamese families with fewer children have taken place... people in Vietnam Children, women, the elderly are the foreground According to the report "Vietnamese Youth”, Summary of statistical indicators from the population and housing census Vietnam 2009... as higher wages, better consumption During “the Golden Population Structure” period, Vietnam has attracted foreign investment by cheap labor force (VOV new, 2011) All the Vietnamese families are