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1370.0 - Measures of Australia's Progress, 2004  
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Contents >> The measures >> Financial hardship

Average real equivalised weekly disposable income(a)(b)(c)(d)

Graph - Average real equivalised weekly disposable income(a)(b)(c)(d)

Between 1994-95 to 2000-01 the mean real equivalised income of low income people (people with household incomes between the bottom 10% and 30% incomes) rose by 8%.

The relationship of financial hardship to progressSociety generally accepts that people should have access to some minimum standard of consumption of goods and services. The presence of financial hardship that could preclude this minimum standard would be a societal concern.

About the headline indicator and its limitations: Average weekly income of people with low incomeAn ideal indicator might show whether the proportion of people in financial hardship (those with limited means whose consumption of goods and services is below the minimum standards accepted by the community) was rising or falling, and whether or not the situation of such people was improving. But there is little consensus on how to construct such measures.

Low income is one indicator of the risk of financial hardship. We recognise that not everyone on a low income is in financial hardship, and, conversely, that not everyone in financial hardship is on a low income. But the group of people on low incomes are likely to significantly overlap with the group experiencing financial hardship. While factors other than income, such as a person's assets and liabilities, also affect the risk of financial hardship, data to construct a more broadly based indicator are not available. Therefore, the headline indicator focuses on changes in the average disposable (after tax) income of people close to the bottom of the income distribution (namely, the 20% of people in the second and third lowest income deciles). The lowest 10% have been excluded from the measure because the very low incomes (close to nil and sometimes negative) recorded for some households in this group do not accurately reflect their living standards.

Financial hardship: Other indicatorsPeople with housing stress.

Some differences within AustraliaSeveral groups show indicators of a high risk of experiencing financial hardship. They include Indigenous Australians and one parent families.

Links to other dimensionsSee also the commentaries National income, Education and training, Work, Health, and Family, community and social cohesion and the article Multiple disadvantage.

Progress and the headline indicator

Society generally accepts that people have a right to consume a minimum standard of goods and services. People in financial hardship do not have the economic resources to enjoy such an opportunity. The National income commentary describes progress in overall levels of income generated in Australia, and changes in the distribution of that income. Financial hardship is a distinct, although related, dimension of progress. However, there is no consensus about the minimum level of goods and services that is considered adequate. Moreover, views about that minimum standard change over time and are related to the norms of the community.

Measures of progress would ideally identify changes in both the extent to which people fall below minimum living standards, and the numbers of people that fall below. The problems of definition aside, measurement is difficult because it requires information about people's living standards. Such data are not available.

That said, people in financial hardship are likely to have relatively low income and low wealth. The headline indicator focuses solely on changes in the level of income among those with relatively low income, as equivalised data on wealth are not available. This indicator provides no information about the number of people living in financial hardship. But it does provide information about how the income of those in financial hardship is likely to be changing.

The number of people whose main source of income comes from government cash benefits are another group that may be of interest, particularly as government benefits are the main policy response to those without other adequate sources of income. Although the welfare system is designed to assist those who society considers are in need of help, there is a risk that some of those receiving these benefits may still be experiencing some financial hardship. While benefit recipients may often own their own home, they generally cannot hold significant amounts of other forms of wealth.

The commentary also discusses two other population subgroups that are likely to have a significant overlap with those experiencing financial hardship, and considers the types of households in each.

    • The relatively high cost of some people's housing means that their income levels may not cover the full range of other goods and services accepted as a community standard. Such people are said to be in housing stress.
    • A further subgroup are those people that experience cash flow problems, such as being unable to pay certain bills, or make mortgage or rent payments, on time.

Measuring income
The income measure used in this commentary is a person’s equivalised disposable (after tax) household income, derived from the ABS Survey of Income and Housing Costs.

Household income is used in recognition of the sharing of income between partners in a couple relationship and between parents and dependent children. To a lesser degree, there may be sharing with other members of the household. Even when there is no transfer of income between members of a household, nor provision of free or cheap accommodation, members are likely to benefit from the economies of scale that arise from the sharing of dwellings. However, larger households normally require a greater level of income to maintain the same material standard of living as smaller households, and the needs of adults are normally greater than the needs of children. The income estimates are therefore adjusted by equivalence factors to standardise the income estimates for household size and composition, while taking into account the economies of scale that arise from the sharing of dwellings.1

Low income people are those who fall into the second and third deciles (bottom 10% to 30%) when all people are ranked according to the level of their equivalised disposable household income. People falling into the lowest decile are excluded because, for many of them, the value of their income does not appear to be an appropriate indicator of the economic resources available to them. Their income tends to be significantly lower than would be available to them if they were reliant on the safety net of income support provided by social security pensions and allowances. At the same time, their expenditure levels tend to be higher than those of people in the second and third deciles, indicating that they have access to economic resources other than income, such as wealth, to finance their

Middle income people are those who fall into the fifth and sixth income deciles.

Groups that have been missed
Data available from ABS household collections are likely to miss some of the most disadvantaged groups, such as homeless people sleeping out and people staying in boarding houses or crisis accommodation provided by welfare agencies. Information about the numbers of people in such circumstances, the duration of these circumstances, and the factors leading to these circumstances, is difficult to obtain, partly because such groups are highly mobile. See Family, community and social cohesion for more information about homelessness.

There are many other aspects of people's lives, their consumption levels and their command over economic resources that could be analysed to assess progress in meeting a minimum standard of living. For example, their ownership of property and other forms of wealth and their levels of debt can have an important impact on their current and future circumstances. Levels of wealth can also impact on people's capacity to adjust to life events, and their ability to sustain an adequate standard of living. In this chapter, analysis is restricted to the subset of four indicators described in the previous paragraphs as data for a more comprehensive evaluation are limited.

Dependency on government benefits
One identifiable group with relatively low incomes and relatively low wealth are those people whose principal source of income is government benefits. People in this group are more likely than other groups to overlap with those people unable to achieve a minimum standard of living in the short and long term.

While people with social security benefits as their principal source of income may be more at risk of financial hardship than those with higher incomes or wealth, an increase in the number of these people does not necessarily mean more people are at risk of financial hardship. It may reflect a broadening of the eligibility criteria for benefits. This may in fact signify a decrease in the number of people at risk and/or the degree of hardship experienced.

Cash flow problems
The ABS has asked questions in several surveys about cash flow problems and aspects of deprivation.2 The table overleaf includes results from the ABS 2002 General Social Survey (GSS). Respondents were asked about a number of potential symptoms of financial hardship, including whether, in the past 12 months, they had various cash flow problems, such as being unable to pay certain bills, or make mortgage or rent payments, on time.

Different households will respond to financial pressures in different ways, and some higher income households will also experience cash flow problems. But the incidence of different household types reporting cash flow problems can give an indication of those most likely to experience financial hardship.
Households reporting cash flow problems did not necessarily report other symptoms of financial hardship and vice versa. And some households will have a greater preference than others to forgo some expenditure to avoid cash flow problems.

We chose 'experiencing three or more cash flow problems in the previous year' as a risk indicator for financial hardship.

A greater incidence of risk indicators among a particular group suggests there is a more significant overlap between that group and those people with unacceptably low living standards.

The headline indicator shows changes in the real equivalised disposable household income of people close to the bottom of the income distribution, namely, the 20% of people in the second and third lowest income deciles. These people are chosen as being most likely to overlap with those unable to finance a generally acceptable standard of living. The lowest 10% have been excluded from the measure because for many people with very low recorded incomes (close to nil and sometimes negative) the value of their income does not appear to be an appropriate indicator of the economic resources available to them - see the 'Measuring income' box on the previous page.

From 1994-95 to 2000-01 the average real equivalised disposable household income of low income people rose by 8%, and so it might be expected that the average living standards of the group also rose. The same people were not necessarily in this income grouping for the entire period. But for those people who were, their rising incomes would on average have provided a capacity to increase their real standard of living, other things being equal. While some would interpret this increase in the real income of the low income group as progress, others would consider that it also needs to be weighed against changes in community standards. Although there is no direct measure of these, one approach is to compare changes with those of 'middle' Australians. And so the chart also shows changes in the real income of the middle income group, which grew by 11%.

Some differences within Australia

The following table presents various household composition types. Proportions of each household type experiencing the four financial hardship risk indicators are presented.

One parent families (living in a household on their own) with dependent children (9% of the population) were most likely to experience housing stress (19% or 300,000 people) and have repeated cash flow problems (23% or 350,000 people); they were very likely to have government benefits as their principal source of income (54% or 850,000 people); and apart from households with the reference person aged 65 or over, most likely to be in the low income group (34% or 550,000 people). People in this group show risk of being in financial hardship.

Aboriginal and Torres Strait Islander peoples
Low levels of employment and high unemployment contribute to the economic disadvantage of Aboriginal and Torres Strait Islander peoples relative to other Australians. For many Indigenous Australians, lower levels of educational attainment and greater geographical isolation act as inhibitors to securing skilled jobs and high wages.

Data from the 2001 Census of Population and Housing show the mean equivalised gross household income for Indigenous people was $364 per week compared with $585 for non-Indigenous people. Between 1996 and 2001, the gap between Indigenous and non-Indigenous income remained the same, with non-Indigenous mean equivalised gross household income 1.6 times higher than the corresponding income for Indigenous people.

The commentaries about Work, Education and training and Housing, and the article on Multiple disadvantage provide more information about factors linked to Indigenous peoples’ financial hardship.

Financial hardship indicators by household composition(a)

Population with financial hardship indicator



In low



ment cash
benefits (c)

Had housing

Had 3 or
more cash
problems in
last 12
Household composition
14 963
2 903
3 373
. .
Children (0–14 years old)
3 896
. .
18 859
3 772
4 151
1 087
1 358

Proportion of population

One parent, one family household with
dependent children
Couple, one family household
Couple only household
Aged under 65
Aged 65 or over
Couple with dependent children
Other couple, one family household
Other family household
Non-family household
Lone person
Person aged under 35
Person aged 35–64
Person aged 65 or over
Group household

* estimate has a relative standard error of between 25% and 50% and should be used with caution ** estimate has a relative standard
error greater than 50% and is considered too unreliable for general use (a) All but the last column of data in this table come from the Survey of Income and Housing Costs (SIHC) 2000–01 . The data in the last column come from the General Social Survey 2002 with the population numbers scaled to the same level as the SIHC. (b) See box on first page for definition of low income group. (c) Proportion of persons in households in which government pensions and allowances are the principal source of income. (d) Proportion of persons in
households in the bottom 10% to 40% of the equivalised disposable household income distribution that also pay more than 30% of their gross household income in housing costs. (e) An indicator of financial hardship derived from selected indicators of cash flow problems, see description below for more detail.
Source: Data available on request, Survey of Income and Housing Costs 2000-01; General Social Survey 2002.

Older people aged 65 or older living in couple only and lone person households, together accounted for nearly 10% of the total population. Over half of both groups (56% or 650,000 people, and 57% or 400,000 people, respectively) were in the low income group. A larger majority were dependent on government pensions and allowances as their principal source of income (72% or 800,000 people, and 79% or 550,000 people, respectively). But relatively few were in housing stress, with only 9% of older couples (or 10,000 people) and 22% of older lone people (or 35,000 people) renting or paying a mortgage (the majority fully owned their homes). And very few older people reported experiencing three or more cash flow problems. On balance, therefore, it seems older people were less likely to experience financial hardship.

People aged under 35 and living alone and those in group households (which largely consist of younger people) had the lowest representation in the low income group (7% or 25,000 people, and 10% or 65,000 people, respectively) but a relatively high proportion reported multiple cash flow problems (15% or 500,000 people, and 13% or 90,000 people, respectively). While their levels of housing stress were higher than the population average, they were still well below the level experienced by one parent households with dependent children.

Measuring housing stress
Housing costs can be a major component of total living costs, and so people with high housing costs are more likely to experience financial hardship. Some people pay high rent or mortgage repayments, especially if they live in areas with high land values. Others have smaller rent or mortgage repayments because, for example, they live in subsidised housing or areas with relatively low property prices, or have relatively small mortgages. And some own their homes outright (their housing costs are confined mainly to rate payments and repairs).

High housing costs may contribute to people experiencing financial hardship, but there are sometimes offsetting aspects. People may choose to live in an area with high land values because it is close to their place of employment and therefore they have lower transport costs. Some people choose to incur relatively high housing costs because they prefer a relatively high standard of housing instead of other consumption possibilities. High mortgage repayments might reflect a choice to purchase a relatively expensive home, or pay off a mortgage relatively rapidly, as a form of investment. In any case, all
repayments of mortgage principal are additions to the wealth of the household. While there is no nationally recognised standard for identifying households whose high housing costs are likely to be contributing to relatively low standards of living, we follow the broad methodology of one of the commoner approaches here.

People are most commonly defined as having housing stress if they have both relatively high housing costs and their income falls in the bottom 40% of the income distribution. For this chapter the housing stress measure includes those with incomes between the bottom 10% and bottom 40% of the distribution of equivalised disposable household income. As explained earlier in the Measuring Income box, the incomes of many of the people falling into the lowest decile are not an appropriate indicator of the economic resources available to them. It is likely that many of them would inappropriately be regarded as in housing stress, and they are excluded here.

Relatively high housing costs are those above 30% of gross household income (non-equivalised). Many higher income households pay more than 30% of their income on housing. They are excluded from the housing stress group because they often have more discretion to reduce their housing costs by lowering their mortgage repayments or moving to a cheaper house. Housing costs include payments of rent, mortgage and rates. No allowance is made in this indicator for repairs and maintenance costs or the quality or age of the dwelling. Note that here housing affordability relates to ongoing payments actually being made for housing, not the initial purchase price of dwellings.

One drawback of this measure of housing stress is the inconsistent treatment of public housing renters compared to renters who receive private rent assistance as part of their government benefit income. Public housing renters pay a market rent that is capped at a low proportion (say 25%) of the renter's income. Therefore, the affordability ratio of housing costs to income for these renters cannot rise above say, 25%, and they will never be assessed as having housing stress under the common definition used for this analysis.

Rather than a discounted public rent, a private renter receiving government benefits may also receive private rent assistance as a component of their government benefits. This difference in support arrangements can result in a significant difference in assessing housing stress. For example, consider a private renter receiving rent assistance whose income after deducting housing costs is the same as that of a public renter receiving subsidised housing of the same quality. Both renters can be assumed to have the same standard of living and the same degree of actual housing stress. But the private
renter is recorded as having higher income and higher housing costs, resulting in a higher ratio of housing costs to income which may well result in only the private renter being measured as having housing stress. This anomaly is of particular concern when considering changes in housing stress over time, since there has been a shift from providing public housing to providing private rent assistance as a means of providing affordable housing to low income people. The analysis of housing stress is particularly difficult for some population groups, such as Aboriginal and Torres Strait Islander peoples relative to other Australians, due to high levels of low cost housing provided both as public housing and community housing (accounting for over 30% of all households in Australia with an Indigenous resident).

People with housing stress (a)(b)
Graph - People with housing stress (a)(b)

In 2000-01 there were 1.1 million people living in households with housing stress, as defined above. They accounted for about 6% of the whole population, and that proportion has been fairly constant since the mid-1990s. Of those, about half lived in rented dwellings. By comparison about 25% of the population lived in rented dwellings and 39% lived in households paying off a mortgage.

About one million individuals and couples receive rent assistance and about 360,000 households live in public housing. Around one-quarter of the renters in the bottom 10% to 40% of the income distribution are public renters, but by definition they are not in housing stress.

Factors influencing change

The overall vitality of the economy is a key determinant in providing jobs and therefore of the economic wellbeing of households. However, some people are unable to work, some earn more than others, consumption and investment behaviours differ, and family situations and life circumstances vary, as does the capacity of individuals to manage all these factors: they can all impact on the risk that an individual household might experience financial hardship.

There are mechanisms to support people who fare less well. Important among them are government social security benefits to support those with low levels of economic resources and who meet certain other eligibility criteria. The benefits are financed through taxation revenue. In addition to the direct income support payments (the pensions and benefits provided to people with limited means of their own), governments provide a wide range of education, health, housing and other indirect goods and services. Other support, provided by the work of charitable organisations (often with the help of government) and the charitable donations made by businesses and households, help reduce the risks of inadequate food, clothing and shelter.

Links to other dimensions of progress

Changes in financial hardship will to some extent impact on, and be impacted by, many of the other dimensions of progress described in this publication.

The income generated by the economy as a whole is an important determinant of the overall living standards of the society. A strong economy is likely to present more opportunities for individuals to improve their financial situation. It also provides a greater capacity to provide support to those at risk of financial hardship.

Financial hardship is often associated with problems such as a lack of participation in work, substance abuse, poor health, poor education, poor housing, crime, social exclusion and a lack of opportunity for children. Of course changes in life fortunes can also be factors. Some people can benefit from windfall gains while others can suffer unexpected losses through crimes committed against them or their own misadventure.

See also the commentaries National income, National wealth, Education and training, Work, Health, and Family, community and social cohesion and the article Multiple disadvantage.

1. The equivalence scale used to obtain equivalised incomes is one that has been used in many studies, including some by the Organisation for Economic Co-operation and Development (OECD). It is sometimes referred to as the 'modified OECD scale'. The scale gives a weight of 1.0 to the first adult in the household, and a weight of 0.5 for each additional adult (people aged 15 years and over), and a weight of 0.3 for each child. By weighting individuals within households the resultant income measures take approximate account of the different needs of households of different size and composition.

2. Results from the 1998-99 Household Expenditure Survey were published by the ABS in McColl, B., Pietsch, L., and Gatenby. J. 2001 'Household Income, Living Standards and Financial Stress' in Australian Economic Indicators, June 2001 (cat. no. 1350.0). A more detailed analysis was undertaken in Bray, J.R, Hardship in Australia: an analysis of financial stress indicators in the 1998-99 Australian Bureau of Statistics Household Expenditure Survey, occasional paper no. 4, 2001, Department of Family and Community Services, Canberra. Also see Australian Bureau of Statistics 2003, General Social Survey: Summary Results, Australia, cat. no. 4159.0, ABS, Canberra

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