What Is Family Credit Counseling?

Credit relationship refers to the debt and debt relationship formed by the parties to the credit through direct or indirect financing and physical financing. It is the basic element of credit.

Credit relationship

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Credit relationship refers to the debt and debt relationship formed by the parties to the credit through direct or indirect financing and physical financing. It is the basic element of credit.

How are contemporary credit relationships formed? As we all know, in theory, any economic unit (including government, business, family, and individual) must maintain equal revenue and expenditure at all times. But it is actually impossible. We can divide all economic units in the real economy into three categories: the first category is an economic unit with equal revenue and expenditure, and there is no surplus or shortage of funds; the second category is a unit with a revenue greater than expenditure, also known as Units with surplus funds can use their excess funds for investment. The third category is units with expenditures greater than income, also known as units with a shortage of funds. The balance of payments must be achieved in the form of debt. Since the first type of units is not universally significant, we focus on the role of the second and third types of economic units in the formation of credit relationships. ^[1]

(I) Analysis of the formation of credit relations from the consumption behavior of families and individuals

Consumption behavior often causes the following reasons:

1. Accident

Some households have accidents, such as the illness or death of a family member, without prior savings or insufficient savings, it is bound to use debt to make up for the current expenditure is greater than income.

2. Subjective evaluation of current and future consumption

The different mental states of families and individuals, that is, different evaluations of current consumption and future consumption, will also lead to discrepancies between income and expenditure. For example, some families and individuals think that current consumption is greater than future consumption. They believe that buying the consumer goods they need is the most valuable at present. These families and individuals often put the income they receive immediately into consumption, and even borrow money to buy consumer goods. Contrary to individuals, they are keen to save their income and wait until the future to buy various consumer goods. As a result, the former spends more than income, saving decreases, and debt increases; the latter, income exceeds spending, saving increases, and debt decreases. The difference in subjective prices for current and future consumption mainly depends on the habits of families and individuals and national traditions. For example, Chinese residents have always been known for frugality. Most families have stable savings, and few families spend more than income.

3 Expectations for future income and expenses

People's expectations of future income and expenditure will also form a debt-debt relationship. If people expect that their income will increase steadily in the future, they will be keen on current consumption, or even buy durable consumer goods by borrowing debt; on the other hand, people expect that their income will decrease in the future, and they must consume carefully and pay attention to increasing savings. Similarly, people's expectations of future expenditures will also affect current consumption aspirations. If people expect that future expenditure items and amounts will continue to increase, it is bound to increase savings and reduce current expenses. For example, during the continuous deepening of China's current economic system reform, a series of major measures such as the reform of the housing system, the reform of the medical insurance system, the reform of the retirement system, and the reform of the education system have been introduced, so that residents' expectations of future expenditures have continued to increase. One of the important reasons restricting current consumption.

(II) Analysis of the formation of credit relations from the investment behavior of enterprises

The reasons for the debt and debt relationship caused by corporate investment behavior are:

1. Different business benefits

From a business perspective, income is savings and expenditures are investments. If the investment of each enterprise is required to be equal to the savings, it will inevitably reduce the productivity level of the whole society. Because in real economic life, such a situation often occurs: some companies have sufficient funds, but due to insufficient management experience or deteriorating market conditions and other reasons, resulting in low economic efficiency; while other companies, although insufficient funds, due to the management experience of leaders Abundant or good market sales and other reasons, resulting in extremely high economic benefits. If the income and expenditure of all enterprises are required to be equal, then the enterprises with high economic benefits will have to suspend work due to lack of funds, while the enterprises with poor economic benefits will have accumulated large amounts of funds and cannot effectively produce. This situation can only be remedied through credit relationships. The establishment of creditor's rights and debt relationships between units with insufficient funds and units with sufficient funds can improve the efficiency of the use of funds and effectively increase social productivity.

2. Different production cycles

Due to the different production cycles of enterprises, debt and debt relations will also be formed. Enterprises with long production cycles must rely on borrowed funds to maintain wage expenses, raw material procurement expenses, and various management expenses in the production cycle. Because the company must obtain the income after the production cycle is completed and the product is sold. And enterprises with short production cycles can often obtain sales income steadily and become a unit of capital surplus.

3 Depreciation and renewal periods of corporate fixed assets are different

The depreciation fee of a company's fixed assets must be withdrawn annually, and the renewal of fixed assets is carried out once in several years. The depreciation costs of fixed assets drawn by some companies each year become temporary excess funds before the fixed asset is updated, while others require the equipment to be updated in advance due to the development of new technologies and need to borrow funds. In this way, companies with surplus funds and Capital shortage companies can adjust their funds through debt and debt relations.

(3) Analysis of the formation of credit relations from government behavior

Government actions also affect the formation of credit relationships. In a market economy system, government revenue and expenditure could not be balanced in the year, because there were many advance consumptions in infrastructure and municipal construction, and a budget deficit was bound to occur. Therefore, the government must borrow from the public and form a Credit relations between the state and the public. Western governments have long used deficit fiscal policies to stimulate economic growth.

From this point of view, from the perspective of consumption and investment behavior, the establishment of a credit system can not only improve the consumption effectiveness of individuals and families, but also promote the investment of enterprises and the development of social productivity; from the perspective of government spending behavior, it can effectively Promote the growth of a country's economy. In the above, we have theoretically analyzed the basis of the existence of credit, that is, the commodity-money relationship and the debt and debt relationship formed between the surplus unit and the shortage unit of the currency when the currency functions as a means of payment. However, to truly understand the objective economic basis of credit, The formation and development of the credit economy must be examined empirically.