Regional Focus: More Discretionary Spending by Households in Asia Pacific

Rising incomes, falling birth rates and changes in household profiles in Asia Pacific have shifted the region’s spending patterns from expenditure on essentials towards more discretionary spending. Spending on transport, communications and health goods and medical services have experienced the fastest growth during 2000-2010. High-income households account for the bulk of discretionary spending while low and middle-income households remain an important market segment for essential products.

Key points

  • Driven by falling birth rates and rising income, the number of household occupants in Asia Pacific declined from 4.3 in 2000 to 4.0 in 2010;
  • Meanwhile, due to cultural shifts and a greater female participation in the workforce, the number of single person and couple without children households rose to 8.1% and 13.0% of total households in Asia Pacific, respectively, from 7.3% and 11.1% in 2000;
  • Changes in household profiles and rising incomes have contributed to a shift in consumer spending patterns in the region from expenditure on essentials such as foodstuff and housing towards more discretionary spending – that is on all categories excluding housing and food and non-alcoholic beverages. In 2010, discretionary spending accounted for 60.8% of total expenditure, up from 58.8% in 2000. Categories which experienced the strongest growth rates in the region include transport, communications and health goods and medical services;
  • Higher-income households are the major driver of discretionary spending across Asia Pacific. For example, a household in Indonesia in income decile 10 (the richest 10.0% of households) spent 63.3% of their expenditure on discretionary categories in 2010, compared to 38.6% made by decile 1 (the poorest 10.0% of households);
  • The trend of households getting smaller should continue in the coming years in Asia Pacific while the region’s per capita annual disposable income should increase from US$2,711 in 2010 to US$5,387 by 2020. This would allow more discretionary spending and create good business potential for a wide range of sectors.

Households getting smaller

Household profiles in Asia Pacific have altered due to changes in lifestyles and income:

  • The average size of households is getting smaller in most countries across Asia Pacific. Average occupants per household for the whole region declined from 4.3 people in 2000 to 4.0 people in 2010. The highest occupancy rate was in Pakistan, at an average of 7.2 people in 2010 while the lowest was Japan, with 2.5 people per household;
  • In many countries, improved living standards have resulted in a declining trend of extended families as young people can move to their own homes. In Indonesia, for example, annual disposable income per capita rose from Rp4.6 million (US$546) in 2000 to Rp16.3 million (US$1799) in 2010. Average occupants per household declined from 4.0 to 3.4 during the same period;
  • Falling birth rates due to better contraception and greater female participation into the workforce is another reason behind the declining household occupancy in the Asia Pacific region. In Vietnam, the average number of children per household decreased from 1.8 in 2000 to 1.3 in 2010 while the average occupants per household declined accordingly from 4.6 to 4.3 during the period;
  • Rising incomes and falling birth rates have also led to a rising number of single person and couple without children households in many countries. In 2010, single person and couple without children households accounted for 8.1% and 13.0% of total households in Asia Pacific respectively, compared to 7.3% and 11.1% in 2000. The trend is significant in countries such as Thailand, Indonesia, Singapore, South Korea and India, reflecting a cultural shift towards greater acceptance of people living outside a family unit and partners without children;

Share of Couple without Children Households in Asia Pacific and Selected Countries: 2000 and 2010

Graph 1 regional focus

% of total households

Source: Euronomitor from national statistics

  • While couples with children remain the largest type of household, its share to total households declined from 53.5% in 2000 to 49.9% in 2010 for the region as a whole. The largest decline was in Indonesia, from 61.0% to 50.3% during the same period, while Taiwan experienced an increase in the share of couple with children households from 58.9% to 65.9%.

Increased spending on discretionary items

Changes in household profiles together with rising income have changed the general spending patterns in Asia Pacific from expenditure on essentials towards more discretionary spending:

  • For the whole Asia Pacific region, spending on discretionary items – that is, on all categories excluding housing and food and non-alcoholic beverages – accounted for 60.8% of total expenditure in 2010, up from 58.8% in 2000. India is one of the countries which have witnessed the fastest shift in spending patterns, with the share of discretionary spending to total expenditure rising from 45.8% to 57.9% during the same period;
The Share of Discretionary Spending in Asia Pacific and Selected Countries: 2000 and 2010

% of total consumer expenditure

Graph2 regional focus

Source: Euromonitor International from national statistics

Note: Discretionary spending refers to consumer expenditure on all categories excluding housing and food and alcoholic beverages

  • Consumer expenditure on transport and communications has been increasing strongly in several countries in the region. In Thailand, spending on transport accounted for 19.0% of total household expenditure in 2010, up from 13.0% in 2000. In China, consumer expenditure on transport recorded the highest period growth rate among all categories, at 386% in real terms over 2000-2010. During the same period, India’s spending on communications grew by 198% in real terms while its share rose accordingly from 1.3% to 2.2% of total consumer expenditure;
  • Another discretionary category which also recorded a significant increase in consumer expenditure is health goods and medical services, especially in countries which have population ageing problems such as Japan, South Korea and China. In South Korea, spending on healthcare goods and services almost doubled over the period 2000-2010, at 92.8% in real terms.

The rise in discretionary spending in Asia Pacific thus provides good opportunities for businesses in many sectors including healthcare products and services and big-ticket items such as cars and high-tech products.

Highest potential among high-income households

A break down of expenditure by income level showed that high-income households are still the major driver of discretionary spending in most Asian Pacific countries:

  • In many countries in Asia Pacific, high-income households still make up the largest share of consumer expenditure. For example, the highest-earning 30.0% of households (income deciles 8, 9 and 10) in China accounted for 64.5% of the country’s total consumer expenditure in 2010. The same statistic for India was 58.5% in the year;
  • High-income households spend a larger share of their expenditure on discretionary items than low-income households. In Indonesia, for instance, households in income decile 10 (the richest 10.0% of households) spent 63.3% of their expenditure on discretionary categories in 2010, compared to 38.6% made by decile 1 (the poorest 10.0% of households);
  • High-income households tend to make up the bulk of spending on big ticket items, luxuries and education in many countries in the region. In Thailand, households in decile 8, 9 and 10 accounted for 66.7% and 65.8% of total consumer expenditure on transport and hotels and catering in 2010 respectively. In Japan, 71.1% of the country’s education spending in 2010 was made by the richest 30.0% of households;
  • While marketers of many discretionary products in Asia Pacific should focus on higher-income households, low and middle-income households remain an important, fast-growing market segment for essential and retail products including foodstuff. In Indonesia, the average spending on food and non-alcoholic beverages made by a household in decile 1 grew by 88.3% in nominal terms over 2005-2010, compared to 76.9% for a household in decile 10.

Prospects

  • Asia Pacific’s real GDP growth is forecast to remain strong at an average of 7.0% per year between 2011-2015 after a robust recovery of 8.4% in 2010. Strong economic growth should boost household spending in the region. Consumer expenditure is forecast to slow to an annual average growth rate of 3.8% in real terms in 2011-2015 from 9.0% in 2010 as a result of rising inflation;
  • The number of households should continue growing across Asia Pacific and is forecast to reach over 1.0 billion by 2015, compared to 953 million in 2010. The share of couple without children households to total households should increase from 13.0% in 2010 to 13.7% by 2015, against a decline in the share of couple with children households from 49.9% to 48.6% over the same period;
  • Changes in lifestyles, rising income and falling birth rates will continue driving the rise of smaller households in Asia Pacific, leaving potential for more discretionary spending. Birth rates for the region as a whole are estimated to decline to 15.5 per 1,000 in 2020, from 17.8 per 1,000 in 2010. In Indonesia, for example, the number of single person households should increase to 12.5% of total households in 2015 from 10.5% in 2010, while the number of couple with children households should fall from 50.3% to 47.0% during the period;
  • Annual disposable income in Asia Pacific should reach US$5,387 per capita by 2020, representing a real growth of 49.5% over 2010. This would enable households to afford more spending on non-essential items. Discretionary spending in the region is expected to increase to 63.3% of total consumer expenditure by 2015, compared to 60.8% in 2010.
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