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 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 TABLE OF CONTENTS TABLE OF CONTENTS ACKNOWLEDGEMENTS .2 ABSTRACT .3 CHAPTER 1: INTRODUCTION 1.1 Research rationales 1.2 General objectives 1.3 Specific objectives 10 1.4 Thesis structures 11 CHAPTER 2: REVIEW OF THE LITERATURE ON FAMILY SIZE, HOUSEHOLD CONSUMPTION BEHAVIOR AND HOUSEHOLD SAVING BEHAVIOR 13 2.1 Economic theories 13 2.2 Literature review 15 2.3 Empirical studies 18 CHAPTER 3: THE FACT OF FAMILY SIZE, HOUSEHOLD CONSUMPTION AND SAVING IN VIETNAM IN THE PERIOD 2004 - 2008 20 3.1 The features of family size in Vietnam 20 3.2 The features of household consumption in the period 2004 - 2008 .28 3.3 The features of household saving in the period 2004 - 2008 .31 CHAPTER 4: IMPACT EVALUATION 33 4.1 Data sources and methodology 33 4.2 The impact of family size on household expenditure 35 4.3 The impact of family size on household saving 39 CHAPTER 5: CONCLUSIONS 43 5.1 Main results of the studies 43 5.2 Recommendations 44 References 46 ACKNOWLEDGEMENTS First and foremost, I would like to thank my supervisor Dr Nguyen Viet Cuong for his generous support on this thesis Dr Nguyen Viet Cuong always gives useful suggestions that helped me figure out the orientation of the research and completed this thesis I always appreciate the reminding and the advices of Dr Nguyen Viet Cuong during the thesis accomplishment In addition, I would like to express my sincere thank to Dr Pham Thu Phuong for her generous support during the whole process of my thesis Her valuable sources of references have provided me with thorough insights of the subject I sincerely appreciate the support and sharing of Dr Pham Thu Phuong I would like to have special thank to the Institute of Public Policy and Management (IPPM) of National Economics University and all IPPM teachers and staff During the MDE program in IPPM, I had many opportunities to reach the knowledge of public economic management The knowledge not only helps me to approach economic management scientifically, but also support me in my current job Finally, I would like to thank my colleagues and classmates who constantly encouraged me during the work Their encouragement is my great motivation to accomplish this thesis Thanks for all Hanoi, January 07th 2015 Nguyen Thu Hoai 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) LIST OF TABLES Table 1: The average of family size in 2004, 2006, and 2008 .20 Table 2: The average of family size and other characteristics in 2004 22 Table 3: The average of family size and different head education in 2004, 2006, 2008 .23 Table 4: The average of family size and different occupations in 2004, 2006, 2008 24 Table 5: Average income, expenditure, saving value with different characteristics 25 Table 6: The number of households and changes of family size and others 26 Table 7: Average income, expenditure, saving value with different group 27 Table 8: Changes of family size and family expenditure per capita during 2004 - 2008 29 Table 9: The average family expenditure of change and family size .30 Table 10: Regression of family expenditure 30 Table 11: Regression of family saving 32 Table 12: Result of expenditure regression (2006-2004) .36 Table 13: Result of expenditure regression (2008-2006) .37 Table 14: Result of expenditure regression (2008-2004) .38 Table 15: Result of saving regression (2006-2004) .40 Table 16: Result of saving regression (2008-2006) .41 Table 17: Result of saving regression (2008-2004) .42 DIAGRAMS Diagram 1: Family budget and Family life cycle theory .11 Diagram 2: Structure of Family’s budget .14 Diagram 3: Family’s budget in relation with family’s members 14 Diagram 4: Family life circle model including stages .18 CHATS Chart 1: Comparison between 2004 based and 2006 based - Percentage of household of family size change 21 Chart 2: The average family expenditure of change 06/04, 08/06 and 08/04 29 Chart 3: Percentage of household of family saving change 31 CHAPTER INTRODUCTION 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 2004 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 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 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 It opens a brighter and more prosperous future for the young labor force In the dynamic and populated areas, Vietnam has about 22 million households and a labor force of 58.8% population (Golden Population Structure) 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 Some studies have shown that these areas have had a high fertility rate and large family sizes The family size in many developing and developed countries has trended to reduce in recent decade and Vietnam is not an exception According to Vietnam General Statistic Office’s 2011 report, the average family size of Vietnam range from 4.44 in 2002 to 3.89 in 2010 The reduction caused by several reasons, but mainly by birth rate The policies of Population Family Planning were approved by the Congress to cut off high rate birth such as Directives No 10/2011/CT-TTG, Vietnam government; Ordinance No 06/2003 – Vietnam national congress, Population Specialized Division ("Encouraging family with one or two children" Program is one of these policies) The Vietnam birth rate has fallen considerably by this policy However, in some mountainous areas, the birth rate of Minority people is higher than the other groups (Vietnam General Statistic Office Report, 2009) This causes the differences in allocating and exploiting the nature resources, income, living standard and investment Average family’s member in Vietnam Year20022004200620082010Average family’s size4.444.364.244.123.89 Another change in family size is the late marriage (the average age of marriage about 27 in developed countries) (Robert G.Bitter, 1986, p.631; Steven P Martin, 2002, p 3-8) Thus, it is necessary to study the impacts of family size to the economic growth in general and to the family’s growth in particular which may support the policymakers for future national development planning of Vietnam This 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 4, 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: 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) 5, 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)7 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 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 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 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 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 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 ... thing is young families with one child or without children, the parents have more career opportunities (Herrin, 1993) On the other hand, in childless or fewer children families, the time spent... Columbia, Chile, Ecuador was positive and negative in Peru, Venezuela James Smith & Michael Ward (1980) found that Child’s goods increase and family consumption decreases with the number of children... joining of families through marriage: the new couple Families with young children Families with adolescents Launching children and moving on Families in later life According to the report "Vietnamese