Households spend money on food, electricity bills, phone bills, rent, bus fares, fridges and so on. All of this is Household Final Consumption Expenditure (HFCE). For National Accounts everyone pays rent: even if you own your own home, HFCE includes an estimate for the rent you pay yourself (see Imputed Rent). HFCE is all spending on goods or services to satisfy the household’s needs and wants.
Some household spending is Capital Formation such as buying houses and apartments or building an extension to a house. However most spending on durable goods like cars, furniture and appliances is part of HFCE.
The cost of holidays taken by Irish people abroad is also included in HFCE for Ireland, even though the money is spent in hotels and restaurants in other countries. On the other hand, when foreign tourists visit Ireland, their spending in this country is excluded from the Irish HFCE total.
If a household is paying a mortgage, only some of that expense is part of HFCE. For National Accounts, we break down the interest into pure interest and an implicit service charge by the bank (see FISIM). Only the service charge is part of HFCE. The pure interest is part of the Investment Income paid by the household. The repayments of the principal is a transaction of the Financial Account.
HFCE excludes spending by businesses, even on consumer goods and services, such as entertaining clients in a restaurant.
Household Final Consumption Expenditure is similar to Personal Consumption Expenditure. Household Final Consumption Expenditure is used in the Institutional Sector Accounts, while Personal Consumption Expenditure is used in the Annual National Accounts (ANA), formerly known as National Income and Expenditure and Quarterly National Accounts.
