Households provide labor (one of the "factors of production") to businesses. In return, businesses provide income to the households.
Households use some of their income to buy goods and services that are produced by businesses.
Both households and businesses pay taxes to local, state, and federal governments. Governments provide services—such as national defense, transportation, education, justice, retirement, environmental and consumer protection, and regulation—that contribute to the common good.
Households normally contribute part of their income to savings or investment in a financial institution (bank, savings, or investment firm). The financial institution returns interest or dividend payments to the household.
Financial institutions provide funds (through loans or investments) in businesses for expansion and growth. Businesses return interest or capital gains to the financial firms.
Financial institutions invest in government securities and receive interest income from the government.