A system for formalized control of personal consumption expenditure

Abstract

Personal consumption expenditure (PCE) makes approximately 2/3 of the gross domestic product in Lithuania; therefore, efficiency of its control is of high importance for the country’s economy. Control of a household’s financial resources in general and especially the part intended for financing consumption is a complicated task because of the complex interrelations of decisions to be made with numerous factors of economic, social and cultural origin affecting them. Besides, they strongly depend on the personality of the consumer and his or her ability to harmonise needs with disposable resources. From the mathematical point of view, the allocation of resources to finance purchasing and the related decision-making are identical to multi-objective and multi-attribute optimisation tasks, which have to be performed in the household every time an elementary purchase is being planned. It is therefore important to perform the related decision-making based on objective criteria, free from the influence of the above-mentioned subjective factors. Even the latest resource management methods and tools available to households offer very limited possibilities in this regard; therefore, this study aims to contribute to the further development of them. The aim of this study is the development and theoretical justification of a formalized, quantitative criteria based system for the control of personal consumption expenditure on both, the elementary purchases and the aggregate countrywide monetary-flow levels, by employing a modified informal cooperation between households and commercial banks. Five objectives have been defined for the achievement of this aim. Methods used in this study comprise comparative, logical, systemic, and critical analysis methods; a synthesis of multidisciplinary approaches; a questionnaire-based survey; an expert evaluation; and elements from vector, matrix algebra, and differential mathematics. The thesis is composed of an Introduction, three chapters presenting findings of the research, Conclusions, a Reference list and the author’s publications. The problem in the study is analysed from the household and retail banking standpoints with a focus on consumption- related monetary flows at both the household and the aggregate countrywide levels. Research findings target both levels through: a) the developed principles of value decomposition enabling a quantitative evaluation of value components of purchased goods and constituting the base for methods and tools intended for planning and control of resources on the elementary purchases’ level; b) the general guidance system of consumption expenditure employing the above-mentioned principles and a specific economic and psychological education program of bank clients, seeking higher efficiency of resource management on both levels thus reflecting the common interests of households and retail banks; and c) the demonstration of payback potential encouraging the banks to invest into development of such a system and to expand informal cooperation with households. Findings of the research were published in seven papers and presented at seven scientific conferences, of which six were international.