4102.0 - Australian Social Trends, 2004  
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Contents >> Economic Resources >> Household assets, liabilities and financial stress

Income Distribution: Household Assets, Liabilities and Financial Stress

Contributed by Tony Eardley, Social Policy Research Centre, University of New South Wales.


In 2002, more than half (56%) of all households reported having no consumer debt, and, for almost two-thirds (65%) of those that did, the total amount was less than $10,000.

Some low income households face greater difficulties in maintaining or improving their standard of living, and in coping with financial stress, than others. The extent to which low income households experience financial difficulties is affected by whether they have savings, housing equity and other assets, and by the level of their debt or other liabilities.

This article explores the relationship between household assets and liabilities, household income and selected financial stress indicators. It reveals that while wealth, in terms of housing equity, savings and other assets, does not always go along with higher income in Australian households, there is still a strong relationship between them. It also reveals that serious financial stress is mainly restricted to a small proportion of households, most of which do not own (and are not purchasing) their own home and have little in the way of savings or other investments.

HOUSEHOLD ASSETS AND LIABILITIES ...EQUITY IN HOME

In 2002, there were around 19.2 million people of all ages living in 7.5 million households in Australia. Less than a third (30%) of these households reported that they did not own their home and were not purchasing it, and hence had no equity in their dwelling. The level of home ownership increased to some extent with income, but even in the highest income quintile, 23% of households did not own their own home (with or without a mortgage). This group would include households in a range of circumstances, such as young, high income households which have not yet taken on home purchase, but may also include some people with homes owned through companies or family trusts. A further 16% of all households had equity valued at less than $100,000. Just over one in ten households had more than $400,000 worth of equity in their home. The level of home equity increased with income, so that the proportion of households with people in the top income quintile with $400,000 or more in equity (21%) was four times that in the lowest income quintile (5.3%).


EQUITY IN DWELLING BY EQUIVALISED GROSS HOUSEHOLD INCOME - 2002
Equivalised gross household income quintile(a)
Level of equity
Households
Lowest
Second
Third
Fourth
Highest
'000
%
%
%
%
%
%
Did not own home(b)
2,211
29.5
39.9
32.8
28.1
23.1
22.7
Less than $100 000(c)
1,229
16.4
14.3
18.6
20.4
19.5
14.1
$100 000-199 999
1,473
19.7
20.4
20.2
21.3
21.2
17.0
$200 000-299 999
974
13.0
10.7
12.8
13.9
14.8
13.5
$300 000-399 999
564
7.5
5.4
6.2
6.6
8.5
10.8
$400 000 or more
801
10.7
5.3
6.7
9.3
10.8
20.9
Not known/not stated
243
3.2
3.9
2.6
1.7
1.1
1.0
Total
7,495
100.0
100.0
100.0
100.0
100.0
100.0
'000
'000
'000
'000
'000
Households(a)
1,755
1,286
1,215
1,228
1,462
(a) Excludes households where income was unknown or not stated.
(b) Either with or without a mortgage.
(c) Includes nil or negative values.
Source: ABS 2002 General Social Survey.
HOUSEHOLD ASSETS AND LIABILITIES

Data in this article are drawn from the General Social Survey (GSS) conducted by the ABS in 2002. The GSS asked about selected financial stress indicators and selected household assets and liabilities such as investments and consumer debt.

Equity in dwelling is calculated as the value of the dwelling in which the household usually resides, less the amount owing on mortgages or secured loans against the dwelling.

Financial stress refers to households' being at risk of experiencing deprivation because of a shortage of money (see also page 139).

Equivalised gross household income is a standardised income measure which has been adjusted for the different income needs of households of different size and composition. Income quintiles are formed by ranking persons of all ages from the lowest to the highest based on their equivalised gross household income and forming five equal sized groups (see Australian Social Trends 2004, Household income, pp. 142-145).

For more details regarding GSS data and definitions see General Social Survey, Summary Results, Australia 2002 (ABS cat. no. 4159.0).


...CASH SAVINGS AND OTHER INVESTMENTS

The accumulation of investments, including cash savings, shares and investment property, is similarly related to income. About half the households with people in the lowest income quintile reported having less than $1,000 in cash savings and no other investments. However, income and investments do not always go together. For example, 8.6% of households with people in the highest income quintile also reported having less than $1,000 in cash savings or other investments, while 14% of those in the lowest quintile had such investments valued at $50,000 or more. As with home equity, this is likely to reflect differences in the life cycle stages of households. For example, many retirees have substantial cash savings and/or other investments but relatively low incomes, while some younger, high income households will not yet have acquired such savings and investments, or may be putting much of their disposable income into home purchase.


VALUE OF INVESTMENTS(a) AND CONSUMER DEBT, BY EQUIVALISED GROSS HOUSEHOLD INCOME - 2002
Equivalised gross household income quintile(b)
Households
Lowest
Second
Third
Fourth
Highest
‘000
%
%
%
%
%
%
Total value of selected investments
No investments
2,193
29.3
50.2
36.5
29.6
19.6
8.6
Less than $10 000
1,720
22.9
21.5
22.6
26.8
28.2
19.4
$10 000-$49 000
1,243
16.6
14.7
16.9
15.6
17.9
19.6
$50 000 or more
2,304
30.7
13.5
23.7
27.9
34.1
52.5
Not known/not stated
35
0.5
0.2
0.3
0.1
0.2
0.0
Total
7,495
100.0
100.0
100.0
100.0
100.0
100.0
Total value of consumer debt
No consumer debt
4 198
56.0
74.5
60.1
50.2
42.0
45.0
Less than $5 000
1 386
18.5
15.6
20.7
21.6
21.0
16.4
$5 000-$9 999
645
8.6
4.5
7.3
10.3
12.6
10.4
$10 000-$49 999
971
12.9
3.8
9.7
14.6
19.2
20.9
$50 000 or more
128
1.7
0.7
0.7
1.4
2.5
3.1
Not known/not stated
167
2.2
0.9
1.5
2.0
2.7
4.1
Total
7 495
100.0
100.0
100.0
100.0
100.0
100.0
(a) Cash savings and other investments, excluding equity in home.
(b) Excludes households where income was unknown or not stated.
Source: ABS 2002 General Social Survey.
INVESTMENTS AND CONSUMER DEBT

Cash savings and other investments refer to: having over $1,000 in cash or deposited in financial institutions; own incorporated business; shares, stocks and bonds; and investment property (i.e.land or buildings other than the dwelling in which the household resides).

Consumer debt is debt or liabilities associated with the purchase of consumables incurred by way of: credit or store cards which are not completely paid off; car or personal loans; interest free purchases; and hire purchase arrangements. The following debts are excluded: investment loans; lines of credit; overdue bills (e.g. for electricity or telephone); outstanding fines; and Higher Education Contribution Scheme (HECS) debts.

...CONSUMER DEBT

Lower income households were generally less likely than other households to have loans and outstanding credit card payments. In 2002, three-quarters of households with people in the lowest income quintile reported having no consumer debt. This is possibly because it may be harder for some of these households to access or afford loans and/or credit cards in the first place, while for others, it may be because they manage their finances differently. However, it would also be related to the life cycle stage of the households and the age profile of people living in these households. This group would comprise a relatively high proportion of older people who are less likely to get into debt.

The incidence of consumer debt generally increased with income, although households with people in the highest income quintile were less likely to be free of consumer debt than households in the middle quintile (45% and 50% respectively), but more likely than those in the fourth quintile (42%).

More than half (56%) of all households reported having no such consumer debt at all, and for close to two-thirds (65%) of those that did, the total amount was less than $10,000. Most debts accruing to households with people in the lowest income quintile were relatively small, with only 4.5% having debts of $10,000 or more, partly because their low incomes make access to loans or credit difficult. Nevertheless, for households with low incomes, such debts can still be a considerable burden.

FINANCIAL STRESS

Measures of income and expenditure do not necessarily tell the whole story about people's capacity to maintain living standards and meet household needs. Households may choose to go without certain goods or services, draw down savings, or take on debts in order to maintain other spending or meet urgent financial commitments. How far this happens may be an indication of the level of financial stress households experience.

According to measures used in the ABS 1998-99 Household Expenditure Survey, life-cycle stages affected the likelihood of experiencing financial difficulties, with one-parent households and younger single people reporting the higher levels of stress. While both high and low income households experienced financial difficulties, low income households were much more likely to have experienced these difficulties than other households, especially the higher levels of stress (see Australian Social Trends 2002, Households in financial stress, pp. 170-174).

FINANCIAL STRESS MEASURES IN THE 2002 GENERAL SOCIAL SURVEY (GSS)

The financial stress indicators in the 2002 GSS comprised three measures aimed at identifying households that are most at risk of experiencing deprivation because of a shortage of money. The measures were: the ability to raise $2,000 in an emergency within a week; cash flow problems; and dissaving actions.

Cash flow problems are events or actions experienced by members of the household in the last 12 months, because they were short of money. They included being unable to pay, on time: electricity, gas or telephone bill; mortgage or rent payments; car registration or insurance; and minimum payment on credit card. They also included: pawning or selling something because cash was needed; being unable to heat the home; going without meals; seeking financial help from friends or family; and seeking assistance from welfare or community organisations.

Dissaving actions are actions taken in the last 12 months where assets were used, or debts incurred or increased to pay for basic living expenses. They include: reduced home loan repayments; drew on accumulated savings or term deposits; increased the balance owing on credit cards by $1,000 or more; entered into a loan agreement with family or friends; took out a personal loan; sold household goods or jewellery; and sold shares, stocks or bonds.

Individual indicators do not, on their own, identify a household as having financial stress: they may simply reflect household financial management through the temporary prioritising of particular expenditures over others. However, where households report a number of different stress indicators, it is more likely that they are experiencing genuine difficulties.

The 2002 General Social Survey collected data on a number of indicators of potential financial stress: the ability to raise money in an emergency within a week; taking a dissavings action; and experiencing cash flow problems. In 2002, of all Australian households, 15% reported that they could not, in an emergency, raise $2,000 within a week. One-fifth (20%) of households had taken a dissaving action, with the most common dissaving action being to draw on accumulated savings or term deposits (8.7% of households) in the previous 12 months.

About one-quarter of Australian households had experienced at least one cash flow problem in the previous 12 months. The most common problem, experienced by 13% of households, was being unable to pay household bills on time, followed by having sought financial help from friends or family (8.7%). The more severe problems, such as having to pawn or sell something to raise cash, or having to go without meals, were less common - each being experienced by around 3% of all households. Only 1% of households reported that they had been unable to heat their home in the previous 12 months.


TYPES OF CASH FLOW PROBLEMS OF HOUSEHOLDS BY VALUE OF EQUITY IN DWELLING(a) - 2002
Value of equity in home
Did not
Less than
$100,000-
$200,000-
$300,000
Households
own home
$100,000
$199,000
$299,000
or more
Total
Selected cash flow problems
'000
%
%
%
%
%
%
%
Could not pay electricity, gas, or telephone bills on time
969
13.4
58.1
19.4
10.8
6.5
5.2
100.0
Could not pay mortgage or rent payments on time
350
4.8
65.7
19.1
7.7
4.1
3.3
100.0
Could not pay car registration or insurance on time
396
5.5
52.2
20.7
10.6
9.2
7.3
100.0
Could not make minimum payment on credit card
280
3.9
49.7
26.3
10.7
8.3
5.1
100.0
Sought financial help from friends or family
644
8.9
60.8
18.3
10.5
5.6
4.8
100.0
Other cash flow problem(b)
716
9.9
72.7
14.9
4.6
4.3
3.6
100.0
None of these cash flow problems
5,600
77.2
24.3
16.2
22.2
15.2
22.1
100.0
Total(c)
7,252
100.0
. .
. .
. .
. .
. .
. .
(a) Excludes households where level of equity in dwelling is not stated.
(b) Comprises: pawned or sold something because cash was needed; went without meals; was unable to heat home; or sought assistance from welfare or
community organisations.
(c) Components do not add to total as households may report more than one cash flow problem. Includes households where cash flow problems were not stated.
Source: ABS 2002 General Social Survey.



ASSETS, LIABILITIES AND CASH FLOW PROBLEMS

The experience of cash flow problems varied according to levels of housing equity and was strongly concentrated among households that did not own and were not buying their homes. Although non-homeowners comprised less than one-third (30%) of all Australian households in 2002, they accounted for well over half (58%) of households that had been unable to pay their electricity, gas or telephone bills on time. Noticeably, they accounted for around three-quarters of households that had experienced the more severe problems: going without meals; pawning or selling something because cash was needed; and seeking assistance from a welfare or community organisation.

NUMBER OF CASH PROBLEMS BY VALUE OF INVESTMENTS(a)(b) - 2002
Value of household investments
Less than
$10,000-
$50,000
Households
None
$10,000
$49,999
or more
Number of
cash flow problems
‘000
%
%
%
%
%
None
5,785
77.6
55.9
81.8
88.0
89.4
One
656
8.8
15.7
8.0
5.4
4.7
Two
335
4.5
9.7
3.7
1.7
1.6
Three
207
2.8
6.5
1.7
1.0
0.9
Four or more
292
3.9
10.4
1.9
1.3
0.7
Not known/not stated
184
2.5
1.8
2.9
2.6
2.7
Total
7,460
100.0
100.0
100.0
100.0
100.0
(a) Cash savings and investments excluding equity in home.
(b) Excludes households where value of these investments were unknown or not stated.
Source: ABS 2002 General Social Survey.




HOUSEHOLD CASH FLOW PROBLEMS AND CONSUMER DEBT(a) - 2002
HOUSEHOLD CASH FLOW PROBLEMS AND CONSUMER DEBT(a) - 2002


Whether households experienced cash flow problems was also influenced by the level of household cash savings and investments other than home equity. In 2002, households without these were considerably more likely than others to experience multiple cash flow problems. For example, 10% of those with no savings or investments reported four or more such problems, compared to 3.9% of all households. However, more than half (56% ) of households that had no savings or investments also reported having no cash flow problems, compared with 78% of all households. Having at least some savings and/or investments appeared to protect the vast majority of households from these types of cash flow problems and, as the total value of these savings and investments increased, the likelihood of experiencing cash flow problems declined.

There was also a relationship between consumer debt and the experience of cash flow problems. The likelihood of having some form of consumer debt increased as the number of cash flow problems increased. Overall, 44% of households had some form of consumer debt, but that proportion rose to 63% of those reporting one cash flow problem and to 75% of those reporting five or more cash flow problems (although the number of households reporting five or more cash flow problems was small).

FINANCIAL STRESS IN HOUSEHOLD WITH LOW INCOME AND NO HOUSING EQUITY

Households with people in the bottom income quintile with no housing equity are likely to include the most disadvantaged households. In 2002, just over half of these households reported that they could not, in an emergency, raise $2,000 in a week. In comparison, only 5.5% of those households with people in the top income quintile and 15% of all households in Australia (including those with housing equity) reported that they were in this situation. The non-homeowners in the bottom income bracket were also much more likely than those households with people in the top income bracket, and households in general, to have been unable to pay a household bill on time and, especially, to have had to pawn or sell an item to raise money.

There was no difference between the proportions of these groups that took dissavings actions (27%). This reflects that those on the lowest incomes are less likely to have savings to draw down, investments to sell, or credit available to increase.

HOUSEHOLDS WITH NO HOUSING EQUITY REPORTING SELECTED FINANCIAL STRESS INDICATORS - 2002
HOUSEHOLDS WITH NO HOUSING EQUITY REPORTING SELECTED FINANCIAL STRESS INDICATORS - 2002





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