Reference Budgets


How to develop reference budgets

Reference budgets can be based on empirical data (e.g. budget surveys) or they can be constructed by budget experts. Reference budgets based on empirical data only fit to "reality", but often show deficits for households with a low income. These budgets are thus not quite useful for budget information and debt advice (where balanced budgets are needed).

total income versus total expensesThat is why constructed reference budgets are needed, with the empirical data as a reference. They combine data from a variety of sources including household surveys and use econometric techniques. Of course, constructed budgets by experts may be criticized because of their subjective nature.

Therefore a detailed and transparent procedure is needed to take the advantages of both approaches, while minimizing their disadvantages.

Reference budgets can be made easily by making an expenditure pattern for households with a minimum income and based on experience of f.e. debt counselors. More sophisticated reference budgets, as developed and used in the Netherlands, usually are built in a modular way, combine data from a variety of sources, including household-surveys and by using econometric techniques.

Reference budgets or budget standards, as they are called in some countries, are a reference for households’ spending patterns. They are not a prescription how individual households should spend their money. Personal circumstances and the real life experiences of low income households must always be taken into account.

Disseminate reference budgets
The easiest way of disseminating reference budgets is with help of software, where the individual situation of a household can be entered. Software to make reference budgets can be used in a wide range of applications: electronic cashbooks and personal finance software. But also the financial sector can use reference budgets to help clients in their decision buying certain financial products as loans, mortgages, renting a house and insurances. Of course it is also possible to make tables for specific households.

Promote social inclusion, avoid negative effects
In order to ensure that reference budgets will be used to promote social inclusion and to avoid possible negative effects on people experiencing poverty, four crucial questions have to be considered (after british social scientist John Veit-Wilson):


1. For what: What is the purpose of the budgets? To ensure a decent life in comparison with the standards of ‘normal society’, or only to meet basic needs?
2. For whom: For every citizen in the society or only for a specific group? Who are the intended beneficiaries, and how are they defined and/or targeted?
3. For how long: What is their time dimension in terms of duration or of policy perspectives?
4. By whom: Who sets the rules and conditions of the budgets and according to which criteria? In how far have people experiencing poverty been involved, and to what extent will they be involved?

Finding answers to these questions is essential before drawing conclusions with regards to the use of reference budgets for social inclusion.


Project coordination and contact: Applica sprl, Rue Van Campenhout 37, 1000 Brussels (Belgium)