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EXPLANATORY NOTES


INTRODUCTION

1 This publication presents a summary of findings about household wealth and wealth distribution in Australia compiled from the 2003-04 Survey of Income and Housing (SIH). The survey collected detailed information about the income, assets, liabilities and household characteristics of persons aged 15 years and over resident in private dwellings throughout Australia. In this publication, net worth is used to describe the concept of wealth.

2 The statistics in this publication present a broad overview of household wealth related data items collected during the 2003-04 SIH. Emphasis has been given to highlighting the differing household net worth compositions and distributions when mean household net worth is cross-classified by various household characteristics, such as income levels and sources, family composition of the household, geographic location and reference person characteristics. See Glossary for household and reference person definitions.

Survey of Income and Housing Issues

3 The SIH was conducted continuously from 1994-95 to 1997-98 and then in 1999-2000, 2000-01, 2002-03 and 2003-04. The 2003-04 SIH included a sample of approximately 11,000 households, which were enumerated from July 2003 to June 2004. In future, the SIH will be conducted every two years.

4 A major change for the 2003-04 SIH has been the collection of a comprehensive range of household assets and liabilities to enable analysis of net worth and its components across households.

5 The 2003-04 SIH has been integrated with the 2003-04 Household Expenditure Survey (HES). This integration has been achieved by selecting a subsample of the households in the SIH survey and asking them the additional questions required for HES purposes. Respondent burden is lower than if the two surveys were not integrated. Also, the resultant dataset is richer because HES and SIH results are more comparable than previously. This improvement is particularly important when considering the comprehensive net worth data that were collected for the first time as part of the 2003-04 SIH.

6 The methodology of the 2003-04 SIH, including the collection of household asset and liability information, is being retained for the 2005-06 SIH, except that there will be no HES subsample in 2005-06. The next HES subsample will be included in 2009-10.

7 The Household Expenditure Survey and Survey of Income and Housing User Guide, 2003-04 (cat. no. 6503.0), describes the definitions, concepts, methodology and estimation procedures used in the Household Expenditure Survey and the Survey of Income and Housing.

CONCEPTS AND DEFINITIONS

8 The concepts and definitions relating to statistics of income and net worth are described in the following section. Other definitions are included in the Glossary.

Household

9 The household is the basic unit of analysis in this publication. This may be a group of two or more persons living in the same dwelling who make common provision for food or other essentials for living, or one person who makes provision for his/her own food or other essentials for living without combining with any other person. A group of people who make common provision for living essentials but are living in two separate dwellings are considered to be two separate households.

10 The household is adopted as the basic unit of analysis because it is assumed that sharing of the use of goods and services occurs at this level. If smaller units, say persons, are adopted, then it is difficult to know how to attribute to individual household members the use of shared items such as food, accommodation and household goods. Intra-household transfers, however, are excluded. For example, if one member of the household were to pay board to another member of the same household then this is not considered as an increase in the amount of income or housing costs of the household. If such transfers were to be included there would be double counting.

Income

11 Income refers to regular and recurring cash receipts from employment, investments and transfers from government, private institutions and other households. Gross income is the sum of the income from all these sources before income tax and the Medicare levy have been deducted.

12 Sources from which income may be received include:

• wages and salaries (whether from an employer or own corporate enterprise)
• profit/loss from own unincorporated business (including partnerships)
• investment income (interest, rent, dividends, royalties)
• government pensions and allowances
• private cash transfers (e.g. superannuation, regular workers' compensation, income from annuities and child support, and other transfers from other households).

• income in kind including employee benefits such as the provision of a house or a car and employer contributions to pension and superannuation funds - however, income in kind provided as part of a negotiated salary sacrifice arrangement can be regarded as cash or "near cash" income and included within the scope of income presented in this publication; it is estimated that about two thirds of salary sacrificed income is included in the 2003-04 SIH estimate of gross income
• capital transfers such as inheritances and legacies, maturity payments on life insurance policies, lump sum compensation for injuries or other damage
• capital gains and losses.

Equivalised disposable income

15 In most tables in this publication, gross household income (as described in the previous paragraphs) is presented along with estimates of net worth or wealth. However, when using income as an approximate means of ranking households according to the relative standards of living (as in tables 1, 10 and 11), it is more appropriate to use equivalised disposable income.

16 Equivalised disposable income is calculated by adjusting gross income in two ways. Firstly, disposable income is derived by deducting estimates of personal income tax and the Medicare levy from gross income. Disposable income better represents the economic resources available to meet the needs of households. Disposable income is then adjusted by the application of an equivalence scale to facilitate the comparison of income levels between households of differing size and composition, reflecting the requirement of a larger household to have a higher level of income to achieve the same standard of living as a smaller household. For example, it would be expected that a household comprising two people would normally need more income than a lone person household if all the people in the two households are to enjoy the same material standard of living.

17 One way of adjusting for this difference in household size might be simply to divide the income of the household by the number of people within the household so that all income is presented on a per capita basis. However, such a simple adjustment assumes that all individuals have the same resource needs if they are to enjoy the same standard of living and that there are no economies derived from living together.

18 Various calibrations, or scales, have been devised to make adjustments to the actual incomes of households in a way that recognises differences in the needs of individuals within those households and the economies that flow from sharing resources. They commonly recognise that the extra level of resources required by larger groups of people living together is not directly proportional to the number of people in the group. They also typically recognise that children have fewer needs than adults.

19 The equivalence scale used in this publication was developed for the Organisation for Economic Co-operation and Development and is referred to as the 'modified OECD' equivalence scale. It is widely accepted among Australian analysts of income distribution. This scale allocates 1.0 point for the first adult (aged 15 years or older) in a household, 0.5 for each additional adult and 0.3 for each child. Equivalised household income is derived by dividing total household income by the sum of the equivalence points allocated to household members. For example, if a household received combined gross income of $2,100 per week and comprised two adults and two children (combined household equivalence points of 2.1), the equivalised gross household income for each household member would be calculated as $1,000 per week. Where disposable income is negative, equivalised disposable income is set to zero.

20 When household income is adjusted according to an equivalence scale, the equivalised income can be viewed as an indicator of the economic resources available to a standardised household. For a lone person household, it is equal to income received. For a household comprising more than one person, equivalised income is an indicator of the household income that would be required by a lone person household in order to enjoy the same level of economic wellbeing as the household in question. For more information on equivalised income, readers are referred to Appendix 3 in Household Income and Income Distribution, Australia, 2003-04, (cat. no. 6523.0).

21 While equivalised income generally provides a useful indicator of economic wellbeing, there are some circumstances which present particular difficulties. Some households report extremely low and even negative income in the SIH, which places them well below the safety net of income support provided by social security (e.g. Centrelink) pensions and allowances. Households may under-report their incomes in the SIH at all income levels, including low income households. However, households can correctly report low levels of income if they incur losses in their unincorporated business or have negative returns from their other investments.

22 Studies of income and expenditure reported in the past HES surveys have shown that households in the bottom income decile with negative gross incomes tend to have expenditure levels that are comparable to those of households with higher income levels (and slightly above the average expenditures recorded for the fifth decile). This suggests that these households have access to economic resources, such as wealth, which were not previously measured in the SIH, or that the instance of low or negative income is temporary, perhaps reflecting business or investment start up. Other households in the bottom income decile in past surveys had average incomes at about the level of the single pension rate, were predominately single person households and their principal source of income was largely government pensions and allowances. But on average, these households also had expenditures above the average of the households in the second decile, which is not inconsistent with the use of assets to maintain a higher standard of living than implied by their incomes alone. Therefore it can be reasonably concluded that most are unlikely to be suffering extremely low levels of economic wellbeing and income distribution analysis needs to take this into account if such households are included. For this reason, tables showing statistics classified by income quintile include a supplementary category comprising the second and third deciles, which can be used as an alternative to the lowest income quintile. With the 2003-04 HES, analysis of the households in the bottom decile can be improved through direct observation of the net worth of these households. A special examination of these low income households is the subject of Appendix 4 in this publication.

23 Further information on the calculation of means and quintiles for gross household income and equivalised disposable income is included in Appendix 1 of this publication.

Net worth

24 Net worth is a fairly specific way of describing the concept of wealth. The term "net worth" is used in preference to "wealth" because it more precisely reflects the nature of information captured in the SIH and presented in this publication. Net worth is calculated as the difference between the stock of household assets and the stock of household liabilities. Net worth is positive when the value of household assets is more than the household liabilities. Likewise, net worth is negative when household liabilities exceed household assets.

25 Assets can take many forms including:

• produced tangible fixed assets that are used repeatedly and for more than one year, such as dwellings and their contents, vehicles and machinery and equipment used in businesses owned by households
• intangible fixed assets such as computer software and artistic originals
• business inventories of goods
• non-produced assets such as land
• financial assets such as bank deposits, shares, superannuation account balances and the outstanding value of loans made to other households or businesses.

• mortgages
• study loans
• investment loans
• credit card debts
• debt on other loans such as personal loans to purchase vehicles.

28 Outstanding loans reflect the amount owing for an asset. The equity held in an asset may increase over time as an outstanding loan amount is reduced (e.g. the value of a dwelling with relation to the loan amount outstanding on that dwelling). Where only the proportion of a loan is used for a purpose, only the proportion outstanding for this purpose is included. The proportioning of loans applies to all of the examples mentioned in this publication, particularly in the paragraphs below.

29 Value of property estimates include the value of any associated land which would be included in the sale of the dwelling if it were sold (e.g. for separate houses it includes value of land, for caravans it includes value of site if owned by the household, for farm dwellings it includes home paddock). The estimated value is reported by the household respondent.

Relationship between net worth and income

30 This publication provides information about net worth and income of households, but it would be misleading to assume that household net worth and household income have an exact positive relationship. Higher income households may have higher wealth as wealthier households have more assets to earn income and higher income households also have a higher propensity to save. However, household net worth is also dependent on other characteristics such as life cycle effects, family composition etc. The differences in the distribution of wealth and income partly reflect the common pattern of wealth being accumulated during a person's working life, and then being utilised during retirement. Therefore many households with relatively low wealth have relatively high income, especially if they are younger households. Conversely older households may have accumulated relatively high net worth over their lifetimes but have relatively low income in their retirement.

Relationship between net worth from SIH and from the Australian System of National Accounts

31 This publication contains estimates of the wealth of Australian households compiled from data collected in the SIH. The Australian System of National Accounts (ASNA) also provide estimates of the net worth of Australian households. Appendix 3 compares wealth data from the two data sets and describes and quantifies some of the major scope, definitional and methodological differences between the two.

SURVEY METHODOLOGY

Scope and coverage

32 The survey collects information by personal interview from usual residents of private dwellings in urban and rural areas of Australia, covering about 98 per cent of the people living in Australia. Private dwellings are houses, flats, home units, caravans, garages, tents and other structures that are used as places of residence at the time of interview. Long-stay caravan parks are also included. These are distinct from non-private dwellings which include hotels, boarding schools, boarding houses and institutions. Residents of non-private dwellings are excluded.

33 The survey also excludes:

• households which contain members of non-Australian defence forces stationed in Australia
• households which contain diplomatic personnel of overseas governments
• households in collection districts defined as very remote or Indigenous Communities - this has only a minor impact on aggregate estimates except in the Northern Territory where such households account for about 23% of the population.

• a household level computer assisted interview questionnaire which collected information on household characteristics, assets and liabilities
• an individual level computer assisted interview questionnaire which collected information on income and other personal characteristics from each usual resident aged 15 years and over.

Sample design

36 The sample was designed to produce reliable estimates for broad aggregates for households resident in private dwellings aggregated for Australia, for each state and for the capital cities in each state and territory. More detailed estimates should be used with caution, especially for Tasmania, the Northern Territory and the Australian Capital Territory.

37 The SIH sample was designed in conjunction with the HES. In the combined sample, some dwellings were selected to complete both the SIH questionnaire and the HES questionnaire, while other dwellings were selected to complete the SIH questionnaire only. Dwellings were selected through a stratified, multistage cluster design. Selected clusters were split such that approximately one third of households in the cluster received only the SIH questionnaire and two thirds of households in the cluster received both the SIH and HES questionnaires. Selections were distributed randomly across a twelve month enumeration period so that the survey results are representative of income and expenditure patterns across the year. Over the year, about 80% of persons over the age of 15 in this sample responded.

Non-responding households

38 Of the 14,545 households selected in the sample, 3,184 did not respond at all to the questionnaire, or did not respond adequately. Such households included:

• households affected by death or illness of a household member
• households in which the significant person(s) in the household did not respond because they could not be contacted, had language problems or refused to participate
• households in which the significant person(s) did not respond to key questions.

• income or other data in a questionnaire are missing from one or more non-significant person's records because they are unable or unwilling to provide the data
• all key questions are answered by the significant person(s) but other data are missing
• not every person aged 15 or over residing in the household responds but the significant person(s) provide(s) answers to all key questions.

41 For the third type of partial response, the data for the persons who did respond are retained and data for each missing person are provided by imputing data values equivalent to those of a fully responding person (donor).

42 Donor records are selected by finding fully responding persons with matching information on various characteristics, such as state, sex, age, labour force status, income and expenditure, as the person with missing information. As far as possible, the imputed information is an appropriate proxy for the information that is missing. Depending on which values are to be imputed, donors are randomly chosen from the pool of individual records with complete information for the block of questions where the missing information occurs.

Final sample

43 The final sample on which estimates were based, is composed of persons for which all necessary information is available. The information may have been wholly provided at the interview (fully-responding) or may have been completed through imputation for partially responding households. Of the selected dwellings, there were 14,545 in the scope of the survey, of which 11,361 (78%) were included as part of the final estimates. The final sample consists of those 11,361 households, comprising 22,315 persons aged 15 years old and over. The final sample includes 2,812 households which had at least one imputed value in either income or assets and liabilities. Nearly 70% of these households had only a single value missing and most of these were for superannuation assets or a minor source of income for the household.

SIH FINAL SAMPLE: NUMBER OF HOUSEHOLDS, 2003-04
	CAPITAL CITY		BALANCE OF STATE		TOTAL
	Households	Persons(a)	Households	Persons(a)	Households	Persons(a)
	no.	no.	no.	no.	no.	no.
NSW	1 537	3 131	1 093	2 117	2 630	5 248
Vic.	1 690	3 474	696	1 338	2 386	4 812
Qld	845	1 607	1 151	2 236	1 996	3 843
SA	890	1 713	367	701	1 257	2 414
WA	950	1 909	490	929	1 440	2 838
Tas.	423	811	400	739	823	1 550
NT	335	666	87	161	422	827
ACT	407	783	-	-	407	783
Aust.	7 077	14 094	4 284	8 221	11 361	22 315
- nil or rounded to zero (including null cells)
(a) Number of persons aged 15 years and over.

Weighting

44 Weighting is the process of adjusting results from a sample survey to infer results for the total in scope population whether that be persons or households. To do this, a 'weight' is allocated to each sample unit (e.g. a person or a household). The weight is a value which indicates how many population units are represented by the sample unit. The first step in calculating weights for each unit is to assign an initial weight, which is the inverse of the probability of being selected in the survey. For example, if the probability of a household being selected in the survey was 1 in 600, then the household would have an initial weight of 600 (that is, it represents 600 households).

45 The initial weights are then calibrated to align with independent estimates of the population of interest, referred to as 'benchmarks'. Weights calibrated against population benchmarks ensure that the survey estimates conform to the independently estimated distribution of the population rather than to the distribution within the sample itself.

46 The SIH survey was benchmarked to the in scope estimated resident population (ERP) and the estimated number of households in the population.

47 Three types of benchmarks are used in the calibration of the final weights:

• numbers of persons aged 15 and over
• numbers of children under age 15
• numbers of households.

49 A separate set of benchmarks is used for children under 15, since there are no individual person records for them in the survey. Information about children is recorded on household records and benchmarks for the number of children aged 0-4 and aged 5-14 are used for each state and territory.

50 Numbers of households are calibrated to benchmarks for total Australia with respect to household composition (based on the number of adults (1, 2, 3 or more) and whether or not the household contains children).

51 The person and household benchmarks are based on estimates of numbers of persons and households in Australia. The benchmarks are adjusted to include persons and households residing in private dwellings only and therefore do not, and are not intended to, match estimates of the Australian resident population published in other ABS publications.

Estimation

52 Estimates produced from the survey are usually in the form of averages (e.g. mean net worth), or counts (e.g. total number of households which own their dwelling). For counts of households, the estimate is obtained by summing the weights of all households in the required group (e.g. those owning their own dwelling). For counts of persons, the household weights are multiplied by the number of persons in the household before summing. The SIH collects data on the number of people, including children, in each household but separate records with income and other detailed data are only collected for people 15 years and older. Therefore, counts of persons cannot be obtained by summing the weights of all persons.

53 Income tax payments were estimated for all households using taxation criteria for 2003-04 and the income and other characteristics of household members reported in the survey.

Reliability of estimates

54 The estimates provided in this publication are subject to two types of error, non-sampling and sampling error.

Non-sampling error

55 Non-sampling error can occur whether the estimates are derived from a sample or from a complete collection, such as a census. Major sources of non-sampling error include the following:

• Non-sampling error can arise through the inability to obtain data from all households included in the sample. Although adjustments are made through the weighting process to reflect the differing response rates of various groups in the population, some non-response bias may remain because of differences that exist between the characteristics of respondents and non-respondents
• There can also be errors in reporting on the part of both respondents and interviewers. Reporting errors may arise through inappropriate wording of questions, misunderstanding of what data are required, inability or unwillingness to provide accurate information, or mistakes in answers to questions
• Errors may also arise during processing of the survey data through mistakes in coding and data recording.

57 The following methods were adopted to reduce the level and impact of non-response:

• face-to-face interviews with respondents
• the use of interviewers who could speak languages other than English, where necessary
• follow-up of respondents if there was initially no response
• imputation of missing values
• ensuring that the weighted data is representative of the population (in terms of demographic characteristics) by aligning the estimates with population benchmarks.

Comparison with other data sources

59 Appendix 3 provides a detailed comparison of the wealth data presented in this publication with the wealth data presented in the Australian System of National Accounts, describing some of the major scope, definitional and methodological differences between the two. There are less scope, definitional and methodological differences between the wealth estimates from the SIH presented in this publication and the wealth estimates produced from the 2002 wave of the Household, Income and Labour Dynamics in Australia Survey (HILDA) conducted by the Melbourne Institute of Applied Economic and Social Research (see www.melbourneinstitute.com/hilda). The two surveys were broadly consistent in their estimates of the composition and distribution of wealth.

ACKNOWLEDGMENT

60 ABS publications draw extensively on information provided freely by individuals, businesses, governments and other organisations. Their continued cooperation is very much appreciated; without it, the wide range of statistics published by the ABS would not be available. Information received by the ABS is treated in strict confidence as required by the Census and Statistics Act 1905.

SPECIAL DATA SERVICES

61 The ABS offers specialist consultancy services to assist clients with more complex statistical information needs. Clients may wish to have the unit record data analysed according to their own needs, or require tailored tables incorporating data items and populations as requested by them. Tables and other analytic outputs can be made available electronically or in printed form. However, as the level of detail or disaggregation increases with detailed requests, the number of contributors to data cells decreases. This may result in some requested information not being able to be released due to confidentiality or sampling variability constraints. All specialist consultancy services attract a service charge and clients will be provided with a quote before information is supplied. For further information, contact ABS information consultants on 1300 135 070.

UNIT RECORD FILE

62 It is expected that a basic confidentialised unit record file (CURF) from the 2003-04 SIH will be released in 2006. It is also expected that a more detailed expanded SIH CURF will be available through the ABS Remote Access Data Laboratory. A full range of up-to-date information about the availability of ABS CURFs and about applying for access to CURFs is available via the ABS web site <https://www.abs.gov.au> (see Services We Provide, Confidentialised Unit Record Files (CURFs)). Inquiries to the ABS CURF Management Unit should be emailed to: curf.management@abs.gov.au, or telephone (02) 6252 5853.

RELATED PUBLICATIONS

63 Users may wish to refer to the following ABS products which relate to wealth:

• Household Income and Income Distribution, Australia, 2003-04 (cat.no. 6523.0)
• Household Income and Income Distribution, Australia, Detailed Tables, 2003-04 (cat. no. 6523.0.55.001)
• Household Expenditure Survey, Australia: Summary of Results, 2003-04 (cat.no. 6530.0)
• Household Expenditure Survey, Australia: Detailed Expenditure Items, 2003-04 (cat. no. 6535.0)
• Household Expenditure Survey and Survey of Income and Housing User Guide, 2003-04 (cat. no. 6535.0.55.001)
• Working Paper in Econometrics and Applied Statistics: Experimental Estimates of the Distribution of Household Wealth, 1994-2000. Working Paper 2002/1 September 2002 (cat. no. 1351.0)
• New Experimental Estimates of the Distribution of Australian Household Wealth (Oct, 2002) published in Australian Economic Indicators (cat. no. 1350.0)
• Measuring Wellbeing: Frameworks for Australian Social Statistics, 2001 (cat. no. 4160.0)
• Housing Occupancy and Costs, Australia, (cat. no. 4130.0.55.001)
• Information Paper: Experimental Estimates of Personal Income for Small Areas, Taxation and Income Support Data, 1995-96 to 2000-01 (cat. no. 6524.0)
• Labour Force, Australia (cat. no. 6202.0)
• Survey of Income and Housing Costs and Amenities: Income Units, Australia, 1990 (cat. no. 6523.0)
• Survey of Income and Housing Costs, Australia: User Guide, 1997 (cat. no. 6553.0)
• Measures of Australia's Progress, 2004 (cat. no. 1370.0)
• Measures of Australia's Progress: Summary Indicators, 2005 (cat. no. 1383.0.55.001)
• Government Benefits, Taxes and Household Income, Australia, 1998-99 (cat. no. 6537.0)