Lesbrief Buying and Working (3e druk)

Economics are about the behaviour of people, so about matters that you can see in your own environment. In the subject of economics a household is every unit which independently makes economic decisions. Such economic decisions often involve making choices. You can choose what kind of work you want to do, how long you want to work, what you do with your leisure time, what you buy with your money or how much money you want to save every month. This lesson deals with a number of different concepts that are related to that. Among other things you will learn how to calculate with percentages, how to budget and how you can save and borrow. And what is the difference between having an enterprise of your own and working for a boss?

Chapter 1

Budgeting for everybody

Youngsters often receive money from different sources, for which they sometimes have to do something in return, by means of a sideline, and which they sometimes get for free, like pocket money. When spending that money, they need to make choices. Drawing up a good budget, in which the expected income and the expected expenses are placed side by side, can help in this selection process. In a budget, different kinds of expenses are distinguished: household expenses, fixed charges and reserve expenses. After a budget has been drawn up, it becomes clear whether a surplus of money or a deficit can be expected over the coming period. In case of a deficit, measures must be taken, such as cutting expenses, providing extra income or borrowing money. If any money is left, this can be saved for potential future expenses.

The government also presents a budget every year. The national budget is always offered to Parliament on Budget Day, together with the Budget Memorandum. In the national budget the amounts are specified which the government expects to receive in the next year, such as taxes, national insurance contributions and other revenues. In addition, the expected expenditure is stated, to be spent on things like new roads, education or other matters.

How much clothing money? (www.nibud.nl)
Budget line (video 2 min.)
Budget Day (www.rijksoverheid.nl)

Glossary chapter 1

Chapter 2

The income distribution

Most people receive some form of income. This may be primary income or transfer income or a combination of the two. When you add up all the primary incomes of a country, you get the national income of a country. Primary incomes are earned when people start using the factors of production which they possess -labour, nature, capital and entrepreneurship- in the production process. The money that is subsequently earned with that production process is distributed in the form of wage, lease, rent, interest and profit among the owners of the factors of production that have been used. A part of the primary incomes must be transferred to the government, which in turn pays out part of them as transfer income to the people who receive no or insufficient income to support themselves.

Not everybody earns the same amount of money. The extent of the relative income differences can be represented by means of a Lorenz curve. The farther the Lorenz curve lies away from the (imaginary) centre, the greater the income differences. When income differences are too great they affect prosperity.
Since the 1930s economists have used the growth of the per capita gross domestic product (GDP) as a criterion for measuring whether prosperity has increased. The reasoning is that a higher per capita GDP implies that there are more goods and services available per head so that more needs can be fulfilled. Nowadays, however, there is an ever stronger need for a broader concept of prosperity and other methods have been developed to measure the degree of prosperity, such as the Human Development Index and the green GDP.

GDP (video 3 min.)
The wrongful idolization of GDP (video 6 min.)

Glossary chapter 2

Chapter 3

Saving and borrowing

Saving and borrowing are examples of an exchange over time. Exchange over time means that you shift the moment in time when you spend your money. When you save, you shift the moment of spending your money to the future, and when you borrow, you shift the moment of spending your (future) money to the present. Both saving and borrowing usually involve the payment of a certain interest rate, interest which savers receive and which borrowers must pay.
In the subject of economics, you regularly come across calculations that are made with percentages. In this chapter a number of the most frequently used percentage calculations are described.
When you borrow money, this must be paid back in the future in the form of repayments. In addition, you must pay interest on the part of the loan that you have not repaid yet. As a result, you have less money available for other expenses in the future. When it receives an application for a loan, the bank or another credit provider will always inspect your financial situation carefully, in order to make the risk of the lender not being able to make repayments or interest payments in the future as small as possible. There are different kinds of loans which all come with different characteristics and conditions.

Loans in all kinds of forms (www.nibud.nl)
Borrowing money (www.watislenen.nl)
Calculating the effective mortgage loan interest from the nominal mortgage loan interest
Calculate with percentages (www.beterrekenen.nl)

Glossary chapter 3

Chapter 4

An enterprise of your own

Many people think it is ideal to be their own boss later, but is it really ideal? What are the advantages and disadvantages of having an enterprise of your own over working in paid employment?

Before you start an enterprise, you describe your ideas and plans in a business plan. First you describe who you are, what skills you have and what the object of your enterprise is. Apart from this, you investigate what rules you need to comply with and what permits are required.

In the marketing plan you describe how you are going to bring your products and services to the attention of potential customers. One tool to determine the marketing strategy is the SWOT analysis. After this, the marketing strategy is worked out by means of the marketing mix.

The financial plan makes it clear whether the idea is financially feasible: how do you calculate the expected turnover of your enterprise and what are the purchase costs you can expect? How high will the operating costs be and how do you calculate the gross profit and net profit to be expected? Only when a month has passed can you determine the actual turnover, the costs and the gross and net profit and will you know whether your efforts have been worthwhile.

Starting your own enterprise (www.kvk.nl)
Platform independent entrepreneurs (www.pzo-zzp.nl)
Platform for starting entrepreneurs (www.startbedrijf.nl)

Glossary chapter 4

Chapter 5

The financial administration of an enterprise of your own

What are the things you need to know about the financial administration when you are an entrepreneur? You need to know what a balance sheet is, what items are stated in a balance sheet, why there is a debit side and a credit side. In addition, the profit and loss account is important. In the profit and loss account you can read what the revenues are, what the costs are and whether you have made a profit. In this chapter you learn how to draw up a balance sheet, you learn how financial transactions lead to changes in the balance sheet and how to draw up a profit and loss account. Finally, attention is paid to value added tax (VAT), which does not bring the enterprise any revenue but is not a cost item either.

Balance sheet and profit and loss account (www.jdjong.nl)
Turnover tax, including or excluding VAT (www.financieel.infonu.nl)

Glossary chapter 5

Chapter 6


Goods and services ate traded via markets, whereby the price is determined by supply and demand. In case of a price increase, demand will decrease and supply will increase. In case of a price drop, demand will increase and supply will decrease. These reactions of supply and demand to price changes will bring the market into a balanced situation. When, for instance, demand exceeds supply, the price will increase, so that demand will decrease and supply will increase. This process will continue until supply and demand are equal and there is an equilibrium on the market. This market equilibrium goes together with a certain equilibrium price and a certain equilibrium quantity. This equilibrium can be represented in a graph or arithmetically in a supply and demand model.

Apart from markets for goods and services, you get other markets. An example is the market where the factor of production labour is traded, the so-called labour market. Hereby the workers and the unemployed are the suppliers of (the factor of production) labour and companies and the authorities are the consumers of (the factor of production) labour. The price that is subsequently established for labour is called the wage.

The labor market (video 2 min.)
Market Forms (video 8 min.)
Calculating the Equilibrium Price (www.economiepagina.com)

Glossary chapter 6

Chapter 7

The consumer is you

As a consumer you determine what you buy or not, and in this way you indicate what you find important. So your choices have an effect on the production and on its consequences.

Production comes with effects that have not been incorporated into the price. These so-called external effects may be positive and negative. Examples of external effects are poverty resulting from poor working conditions (social effect) and environmental pollution from activities like flying.

Consumers sometimes do and sometimes do not take sustainability into consideration. By far the greatest group does so sometimes. When consumers know little about the circumstances in which products are produced, so when there is little transparency, it is difficult to take this into account in your decision to buy. Hallmarks can be a solution for this.

The moral licence makes socially responsible behaviour even more complicated. Consumers will use more of an environmentally friendly variant of a product, so that the environmental burden will increase. A water-saving shower head will only save water when you shower as long as or shorter than you did before.

Why share together? (video 47 min.)

Glossary chapter 7

Chapter 8

Financial self-reliance

As a citizen of the Netherlands you are responsible yourself for arranging your finances. You must be able to take care of yourself and take important financial decisions independently. Think of decisions such as:
• How do I want to live together financially with my partner?
• Which insurances will I take out?
• Is the purchase of a house something for me?
• How do I arrange my inheritance?
In order to take these decisions in a sound manner, you need to be well-informed, for instance about which possessions become communal property when you get married or enter into a partnership.

Not all insured persons run the same risk of sustaining damage. The good risks expect less chance of damage than the bad risks. As a result, you can get adverse selection. Due to differentiation between premium levels, good risks need to pay less premium than bad risks, and it is prevented that only bad risks will take out the insurance. When people know that they are insured, they can begin to display moral hazard. As a result, they will claim more damage than had been anticipated initially. The introduction of a deductible will cause people to behave more carefully again.

In the decision to rent or buy a house, the consideration of the housing costs of buying or renting plays an important role. The mortgage interest relief makes buying more attractive. When you buy, you build up a capital. In this decision, the enjoyment of a property is an important non-financial factor.

An inheritance concerns all the assets and liabilities which a deceased person leaves behind. If there is no will, then the law of inheritance determines who will get the inheritance, which is also known as the estate. Inheritance tax must be paid on the share in the estate. How much that is, depends on the relation with the deceased and on the exemption from inheritance tax. If there is a will, then the deceased himself or herself has stated who are the heirs to the estate.

Glossary chapter 8