KEY CONCEPTS


The economic wellbeing of individuals is largely determined by their command over economic resources. Income and wealth are the economic resources that households use to support their consumption of goods and services. This publication provides indicators of the level and distribution of after tax (disposable) household income and household wealth (net worth).

The definitions used to measure the economic wellbeing of people can have a significant impact on the results. The Australian Bureau of Statistics (ABS) follows international best practice for producing micro statistics relating to household economic resources.

This section provides definitions for the key concepts in this release. Further information on these concepts is provided in the Glossary and Explanatory notes, as well as the Survey of Income and Housing User Guide, 2013–14 (cat. no. 6553.0).


INCOME

Household income consists of all current receipts, whether monetary or in kind, that are received by the household or by individual members of the household, and which are available for, or intended to support, current consumption.

Income includes receipts from:

• employee income (whether from an employer or own incorporated enterprise), including wages and salaries, salary sacrificed income, non-cash benefits, bonuses and termination payments;
• government pensions and allowances (includes pensions and allowances from Commonwealth and State and Territory governments as well as pensions from overseas);
• profit/loss from own unincorporated business (including partnerships);
• net investment income (interest earned, rent, dividends, royalties); and
• private transfers (e.g. superannuation, workers' compensation, income from annuities, child support, and financial support received from family members not living in the same household).

Gross income is the sum of the income from all these sources before income tax, the Medicare levy and the Medicare levy surcharge are deducted. Disposable income is the net income after these deductions.

Some limits have been placed on superannuation lump sum payments included as income, where the magnitude of individual amounts received exceeds that likely to be used to support current consumption (e.g. termination and workers’ compensation lump sum payments).

While income is usually received by individuals, it is normally shared between partners in a couple relationship and with dependent children. To a lesser degree, there may be sharing with other members of the household. Even when there is no transfer of income between members of a household, or provision of free or cheap accommodation, household members are still likely to benefit from the economies of scale that arise from the sharing of dwellings. The income measures shown in this publication therefore relate to household income.


WEALTH (NET WORTH)

Household wealth (or net worth) is the value of all the assets owned by a household less the value of all its liabilities.

Assets include:

• non-financial assets, such as dwellings and their contents, land, and vehicles;
• own incorporated and unincorporated businesses; and
• other financial assets such as bank accounts, shares, superannuation accounts, and the outstanding value of loans made to other households or businesses.

Liabilities are primarily the value of loans outstanding including:

• mortgages;
• investment loans;
• credit card debt;
• borrowings from other households; and
• other personal and study loans.
  

EQUIVALISATION

As household size increases, consumption needs also increase but there are economies of scale. An equivalence scale is used to adjust household incomes to take account of the economies that flow from sharing resources and enable more meaningful comparisons across different types of households.

Equivalising factors are calculated based on the size and composition of the household, recognising that children typically have fewer needs than adults. The ABS uses the OECD-modified equivalence scale which assigns a value of 1 to the household head, 0.5 to each additional person 15 years or older and 0.3 to each child under 15 years.

For a lone person household equivalised income is equal to actual income. For households comprising more than one person, it is the estimated income that a lone person household would need to enjoy the same standard of living as the household in question.

Table 1 shows that a couple household with one child would need $1,800 weekly disposable income to have the same equivalised disposable household income as a lone person household with a disposable income of $1,000.

TABLE 1 EXAMPLES OF EQUIVALISED INCOME
Household composition	Equivalising factor (x)	Disposable income (y)	Equivalised disposable income (y/x)
	no.	$	$
Lone person	1.0	1 000	1 000
Couple only	(1 + 0.5) = 1.5	1 500	1 000
Couple with one child under 15 years	(1 + 0.5 + 0.3) = 1.8	1 800	1 000
Group household with three adults	(1 + 0.5 + 0.5) = 2.0	2 000	1 000

Equivalence scales are mainly used for household income, but can also be used for household wealth.


FACT SHEETS

The Household Economic Wellbeing Fact Sheet Series is available from the publication Household Income and Income Distribution, Australia, 2011–12 (cat. no. 6523.0) ‘Downloads’ tab and provides a broad overview of the key concepts and data sources for measuring household economic wellbeing. The Household Economic Wellbeing fact sheet series currently comprises:

• Fact sheet 1. What is household economic wellbeing?
• Fact sheet 2. Understanding measures of income and wealth
• Fact sheet 3. Low economic resource households
• Fact sheet 4. Key data sources
• Fact sheet 5. Changes over time

The series may be expanded in the future to cover other aspects of these important statistics.