WEALTH OF LOW INCOME HOUSEHOLDS

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Key points:

• In 2013-14, just over 4 million people lived in low income households – 830,000 were children under 15 years, 2 million were between 15 and 64 years, and 1.2 million were 65 years or older. These were households with a weekly equivalised disposable income of between $205 and $511, which is below one of the commonly used poverty lines, set at 60% of the median income for all households.
  

• Many low income households are at risk of experiencing financial hardship, particularly those with low levels of assets and/or high levels of debt. This article compares the economic circumstances of younger households (reference person under 65 years) and older households (couples and lone people 65 years and over) using different measurement approaches e.g. including imputed rent and social benefits in kind.
  

• A high proportion of younger low income households were at risk of experiencing economic hardship. Almost two-thirds (65%) had total wealth in the lowest two wealth quintiles, less than 20% owned their home outright and just over half (51%) had equivalised liquid assets worth less than $1,000.
  

• Older low income households, who owned their home and had savings, were at lower risk of hardship. Three-quarters (74%) of older low income households owned their home outright and one-third (31%) had more than $50,000 in equivalised liquid assets, such as bank deposits, shares, etc. However, almost one-third (31%) had less than $5,000 in equivalised liquid assets.

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INTRODUCTION

The economic circumstances of people living in low income households are of concern as they are often at risk of experiencing financial hardship. As income is a major resource people rely on to meet their basic living costs, it is often used in analysis to identify people living in poverty.

Poverty measures are generally based on a percentage of the median income of the population as a whole. Two commonly used measures, in international poverty studies, are to identify people as living in poverty as households with income below either 50% or 60% of the median income for all households.

This article examines the characteristics and economic circumstances of people living in low income households, using data from the ABS Survey of Income and Housing (SIH) and the ABS Household Expenditure Survey (HES). The incomes of these ‘low income households’ fall below the 60% of median income for all households.

To account for differences in household size and composition, household income and wealth have both been equivalised in this analysis.


CHARACTERISTICS OF LOW INCOME HOUSEHOLDS

In 2013-14, there were just over four million people living in low income households. Approximately one-fifth (20%) were children under 15 years, half (50%) were between 15 and 64 years, and almost 30% were aged 65 and over. In comparison, people 65 years and over comprise 14% of the total population.

Government pensions and allowances were the main source of household income for two-thirds of people in low income households, with employee income the main source for 24%. About 40% lived in a household where at least one person was employed, while almost half (49%) lived in a household with no-one in the labour force (Graph 1).



ECONOMIC WELLBEING

Key factors which affect people’s material standard of living (or economic wellbeing) are their income, consumption and wealth (assets net of liabilities). Younger households, for example, may have higher consumption when establishing their first home or raising children.

People with stores of wealth (both financial and non-financial assets) can use these to maintain a comfortable standard of living, despite having a lower income. On the other hand, people with low reserves of wealth may face financial difficulty in times of need, such as during any period of reduced income or if they have substantial unexpected expenses.

Owning a home outright, receiving subsidised rent, or receiving free or subsidised goods and services from the government, can also impact significantly on the economic wellbeing of households.

Income and wealth levels generally vary over people’s lives and are affected by two main factors: (1) their age and their employment situation. Incomes tend to grow until middle age, when labour force participation and earning capacity is at its peak, and decline in older age as people transition out of the paid workforce; (2) wealth tends to be gradually accumulated during the working lives of household members and can then be used during retirement (Graph 2).

Due to the importance of wealth, this article examines the economic circumstances of low income households with a reference person under 65 years (‘younger’ households), compared with couple and lone person households with a reference person 65 years and over (‘older’ households).