Question

Alex has a good-paying job. However, even though he has not received any official confirmation, Alex suspects that his job might be cut in the near future. Rumors in the grapevine hint that the company is going to go through massive lay-offs due to declining revenues. As a result, Alex has decided to forgo buying a house until he has a better idea of his job status. He has a lot of savings, but Alex knows he might need them if he becomes unemployed. In this case, Alex lacks which of the following?

a) Willingness to buy.
b) Credit.
c) Disposable income.
d) Discretionary income.

Answer 1

Alex lacks discretionary income, the funds available for spending after necessities and taxes. Although he has disposable income and savings, the potential job insecurity leads him to prioritize saving over making large purchases like buying a house.

Step-by-step explanation:

Alex lacks discretionary income. Discretionary income is the amount of an individual's income that is left for spending, investing, or saving after taxes and personal necessities (like food, shelter, and clothing) are taken care of. Alex has a job that pays well, suggesting that he likely has disposable income enough to cover his taxes and necessities. However, due to the uncertainty regarding his job security and the potential for layoffs, Alex has chosen not to purchase a house. This decision indicates that while Alex has disposable income, he is hesitant to spend on non-essential items or make significant financial commitments until he is certain about his employment status. This hesitation is due to the potential need to use his savings to cover living expenses in the event of unemployment, hence showing a lack of discretionary income that he feels comfortable using for non-essential purchases.