Autonomous consumption refers to expenses a consumer must pay for regardless of income. This includes necessities like housing and food, which are considered needs, not wants. If a person has zero income, they may need to borrow money or tap into their savings to pay for these necessities.
In economics, autonomous consumption is explained as the expenditures consumers must make even when there is no income. Levels of autonomous consumption depend on a variety of factors that help determine what assets a consumer can draw from to ensure that the basic standard of living is provided for if there is no current income.
Definition and Examples of Autonomous Consumption
Autonomous consumption refers to the expenses you need to pay for regardless of whether you have an income. This often includes housing, food, utilities, and health care. You likely need to find a way to pay for these basic necessities whether or not an income is available and regardless of whether you want to spend money on these essentials.
“They’re expenses that you have to spend money on, even if you don’t want to,” Kevin L. Matthews II, founder of investment education site BuildingBread, told The Balance in a phone interview. “They’re called ‘autonomous’ because these are things that are going to go on anyway. You have to eat. You need a place to stay. If I were to lose my job and didn’t have income, I’m going to have to go into debt or spend savings because I need it. It’s not a new car—that can wait. There are more pressing needs.”
Another way to consider the term is needs vs. wants. The term autonomous consumption is the formal economic name for the needs that you’d borrow or take on debt to pay for if you had no money. Your wants are items you do not need to survive, such as a subscription to a streaming service or a pair of designer shoes.
Unfortunately, not everyone will be able to borrow money or spend from their savings to ensure they have what they need to survive. This could lead to hunger and homelessness. In 2019, there were more than 500,000 people experiencing homelessness. If you or someone you know can’t afford food or shelter and is living in poverty, there are resources on the U.S. Department of Health and Human Services website that may be able to help.
How Autonomous Consumption Works
When you need to pay your mortgage or rent to ensure you have a place to live, that is autonomous consumption. If you buy groceries so you can feed yourself, that is autonomous consumption. These are basic needs, not wants. You may not have enough money to pay for these items, which could lead you to purchase them on a credit card or take money out of your savings. You may even need to borrow money from a family or friend to ensure you’re able to eat and have a roof over your head.
The level of autonomous consumption differs for everyone. It is influenced by factors, including:
- Total assets, such as if you own a home
- Expectations of future income and additional assets
- Difficulty or ease of borrowing money
- Level of savings
- Time period
- Minimum acceptable standards of living and idea of absolute poverty
The government may also be able to help you pay for autonomous consumption through programs like welfare, food stamps, Medicaid, and more.
Discretionary and Induced Consumption
If there is autonomous consumption, then there is also discretionary consumption. This refers to the goods and services available for purchase beyond autonomous consumption. For example, you may need to borrow money to pay for food, but you do not need to borrow money for a pair of concert tickets. Discretionary consumption implies that there is enough money to make the choice to spend more on nonessentials, such as entertainment or expensive vacations. To partake in discretionary consumption, you must have discretionary income.
Of course, there are variables within each type of consumption. For example, you may need to borrow money to purchase food, which is autonomous consumption. However, it is discretionary consumption to purchase food from a restaurant, which may cost more than buying groceries for your home.
Induced consumption occurs when discretionary income rises. It induces a rise in spending. Before discretionary income rises, you may need to pay attention to the costs of autonomous consumption. But as you experience more income, you no longer need to pay for necessities with debt or savings. You may have enough money to cover your necessities, save more, pay down debt, and purchase anything else you want.
What Does Autonomous Consumption Mean for You?
Autonomous consumption is simply the cost of your basic needs, such as housing, food, health care, and transportation. As a consumer, knowing the monthly cost of these necessities may help you develop an emergency fund that covers your basic cost of living for at least three to six months if you were to lose your income or need financial help. It may also help you build your credit so you have additional resources to help cover necessities should there be a change in your financial situation.
Spending your savings on your basic necessities is known as “dissaving.” It is essentially the opposite of saving money. To pay for basic needs, you may need to spend your savings, take out a personal loan, or ask for a cash advance from your credit card. Each of these can be considered dissaving.
- Autonomous consumption refers to the mandatory spending of money on necessities like food, shelter, or health care.
- Regardless of whether a person has an income, they need these essentials to live and may even go into debt or spend from their savings to pay for these things.
- Another way to look at autonomous consumption is your needs vs. wants.
- Any excess spending over the very basic cost of needs is considered discretionary consumption, which depends on income variables.
- When you use credit, debt, or your savings to pay for autonomous consumption, that is known as dissaving.