WEALTH AND DEBT


Wealth (or net worth) tends to be accumulated during people’s working lives, and can be drawn upon to support consumption when income is reduced, such as between jobs or in retirement.

TOTAL WEALTH

In 2013-14, almost two-thirds (65%) of people in younger low income households had wealth levels in the lowest two equivalised net worth quintiles, compared with 23% of people in older households. In comparison, over half (54%) of people in older low income households had wealth levels in the top two wealth quintiles for the total population, compared to one-fifth (19%) of younger households (Graph 1).



LIQUID ASSETS

Non-financial assets, such as property, are the most valuable assets owned by both younger and older households, but are not easily converted to cash to support increased consumption needs. Liquid assets such as bank deposits and shares can be more easily converted to cash to supplement incomes when required.

Graph 2 shows that in 2013-14, just over half (51%) of people in younger low income households had total equivalised liquid assets worth less than $1,000, and a further 16% had less than $5,000. In comparison, approximately one-third (31%) of older people lived in low income households with less than $5,000 in liquid assets (equivalised), while one-third (31%) had $50,000 or more.



DEBT

Credit card debt was the most frequently reported debt for both younger and older low income households (37% and 26%, respectively). For households with credit card debt, the average amount of debt was higher for younger low income households ($4,200) than older ones ($2,800).

The largest liability for low income households was their home loan. Just over one-quarter (27%) of younger households were owner-occupiers with a mortgage, with their home loans averaging $178,000. Relatively few older households (6%) still owed money on their home mortgage.

Levels of debt relative to income are important in understanding the economic wellbeing of individual households. The OECD has suggested that households with debt three or more times higher than their annual income are over-indebted and may be at high risk of experiencing problems if there are any financial shocks, such as a sudden rise in interest rates or a reduction in income.

Very few older households (3%) were over-indebted in 2013-14, whereas over 20% of younger households were over-indebted, peaking at 26% of households in the 45 to 54 year age range (Graph 3).

Two in three younger households with a mortgage and two in five older households with a mortgage, were over-indebted, that is the value of their debt was three or more times their annual income.