“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.
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
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.
