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Feature Article - New Experimental Estimates of the Distribution of Australian Household Wealth (Oct, 2002)


This article was published in Australian Economic Indicators (ABS Cat. No. 1350.0), October 2002

INTRODUCTION

There is considerable interest in the composition and distribution of wealth across Australian households, and how this is changing over time. This article reports some of the findings of an exploratory study into this topic.

An ABS Working Paper ‘Experimental Estimates of the Distribution of Household Wealth, Australia, 1994-2000’ was released for comment today (30 September 2002). This working paper reports the findings of an exploratory study which has melded a range of existing data sets to construct experimental wealth data dissected by key household characteristics. The paper focuses on the data and methods used to generate the estimates, and presents some broad results which have emerged from the data modelling work.

The working paper series provides an avenue for the ABS to make public the results of research or analysis of an experimental nature, so as to encourage discussion, comment and improvement of the exploratory work. Feedback on the methods and results reported in the new wealth working paper is therefore welcomed.


BACKGROUND

The ABS first collected distributional wealth data from households as part of the 1915 War Census, but due to concerns about the public's willingness to respond to questions about their wealth, and due to competing data collection priorities within the ABS' work program, such statistics have not been collected in ABS household surveys or censuses for several decades.

In recent years the ABS has committed increased effort to the analysis of directly collected and administrative data. The purpose of this work is to gain more value from existing data, to reduce the load on data providers and to increase the comparability of statistics from different parts of the Australian statistical framework. As part of this effort, research was undertaken to identify the existing data sets relating to wealth and to explore methodologies for bringing these together to produce wealth estimates. An analytical project was subsequently initiated to construct a set of distributional household wealth estimates for Australia for most of the last decade, using existing data.

This was not the first time that the distribution of wealth has been modelled in Australia. Dilnot (1990), Bacon (1996), Baekgaard and King (1996), Kelly (2001) and others have undertaken similar types of analyses. However, most previous studies have concentrated on a selection of the assets and liabilities owned by households, and have compiled estimates for a particular point (or a selection of points) in time. In addition, the ABS has extended the work of other analysts using more detailed survey unit record information to support the analyses.


HOW THE EXPERIMENTAL ESTIMATES WERE COMPILED

The experimental estimates discussed in the working paper are constructed very differently to those which the ABS obtains via direct collections (i.e. via surveys or censuses). The new experimental estimates have been created by drawing together a range of different data sources, covering different parts of the Australian population which have been collected at different times. They have been modelled rather than directly measured.

For this study, a household’s wealth was defined to equal its net worth - that is, the sum of its assets minus the sum of its liabilities. Using a variety of data sources, individual asset and liability estimates were constructed for each household represented in the Surveys of Income and Housing Costs (SIHC) and Household Expenditure Surveys (HES) covering the financial years 1993-1994 to 1999-2000. These household-level estimates were aggregated and benchmarked to the current price asset category aggregates reported in the National Accounts household sector balance sheet (adjusted to exclude non-profit institutions). The data generated by this process allow the assets, liabilities and net worth of households to be dissected by key characteristics such as household type (based on the composition of the household and the ages of the people within it), broad geography, income deciles and so on.


THE DISTRIBUTION OF HOUSEHOLD WEALTH - EXPLORATORY FINDINGS

For each year from 1994 to 2000, mean and median household wealth increased as the age of the household reference person¹ increased, peaked in the 55-64 age group and then declined. This pattern supports the theory that households build their wealth while householders are working, and then draw upon this wealth in retirement. This pattern is different to the distribution of total income across age groups, which peaks in the 45-59 age group and then falls away more rapidly.

MEDIAN HOUSEHOLD NET WORTH,
BY THE AGE OF THE HOUSEHOLD REFERENCE PERSON-
As at 30 June 2000

AVERAGE HOUSEHOLD NET WORTH BY ANNUAL INCOME DECILE,
As at 30 June 2000

	Couple				Lone parent with dependants		Lone person only
	Without dependants	With dependants
		0-14 only	15-24 only	0-14 and 15-24 only	0-14 only	15-24 only
	$	$	$	$	$	$	$
Mean household net worth	385,853	258,786	588,268	397,265	55,019	178,128	209,287
Median household net worth	243,912	153,477	392,106	277,439	16,449	100,174	111,014

MEAN HOUSEHOLD NET WORTH BY STATE (a), As at 30 June 2000

• an illustration of the types of analyses which can be performed on the experimental estimates produced by the model;
• a range of quality indicators to assist potential users of the estimates to gain insights into their fitness for specific purposes. While broad dissections of the experimental data will generally yield robust results, users of the estimates should only undertake more detailed dissections with caution; and
• sufficient detail so that other analysts may provide feedback to the ABS about the methods used in this exploratory work.