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4102.0 - Australian Social Trends, 2001  
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Contents >> Income and Expenditure >> Expenditure: Expenditure in low-income households

Expenditure: Expenditure in low-income households

In 1998-99, low income households spent $256 per week on average on housing, power, food, health, and transport. High income households spent $527.


Household expenditure
Data in this article come from the Household Expenditure Survey (HES), conducted by the ABS for the 1998-99 financial year. The HES provides estimates of average weekly expenditure on a wide range of goods and services for private use, but excludes expenditure for business and other investment purposes.
Basic goods and services include expenditure on housing costs, domestic fuel and power, food and non-alcoholic beverages, medical care and health expenses, and transport.

Additional goods and services include expenditure on alcoholic beverages, tobacco products, clothing and footwear, household furnishings and equipment, household services and operation, recreation, personal care and miscellaneous goods and services.

Expenditure on selected assets and liabilities includes the principal component of mortgage repayments, and expenditure on superannuation and life insurance, purchasing additional properties, and making alterations and additions to the dwelling occupied by the household.


All households have a finite amount of income to divide up into a household budget. They may allocate some of their household budget to expenditure on basic needs, some to expenditure on additional goods and services and some to provision for future expenditure. Income is the main means by which most households finance current expenditure and make provision for future economic wellbeing. However, this can vary depending on circumstances and life-cycle stage. Some households (e.g. younger working households) may borrow money to finance large purchases (e.g. house, car) while others on lower incomes (e.g. retirees) may finance some of their expenditure by drawing down savings/assets accumulated during their working lives. Some households may be putting part of their income aside to finance future expenditure while others may be investing in their future in other ways (e.g. by acquiring educational qualifications).

Needs also vary over life-cycle stages and between different household types. In the process of making choices about expenditure, households are influenced by both the resources at their disposal and the needs of household members. Because low income is generally associated with more limited economic resources, households with low incomes often have less discretion in making choices about expenditure and will usually experience a lower standard of living than households with high incomes.

AVERAGE WEEKLY EXPENDITURE OF LOW AND HIGH INCOME(a) HOUSEHOLDS, 1998-99

Income quintiles

Lowest 20%
Highest 20%
Expenditure ratio(b)
$
$
ratio

Expenditure on basic goods and services
255.90
527.30
2.1
Expenditure on additional goods and services
182.60
458.60
2.5
Expenditure on selected assets and liabilities
27.70
170.00
6.1

(a) Based on equivalent income.
(b) Ratio of the expenditure of the highest quintile to that of the lowest quintile.

Source: ABS 1998-99 Household Expenditure Survey.


One commonly used method to identify low income households is to rank all households according to their income and then divide them into five groups containing equal numbers of households (referred to as income quintiles). The income quintiles used in this article were derived from estimates of household income which had been adjusted by equivalence scales to take into account the number and characteristics of people in the household. Households in the bottom income quintile are referred to as low income households, while those in the top quintile are referred to as high income households.

While to some extent all expenditure is discretionary, households must provide for their housing, power, food and transport. People also need to attend to their health and physical wellbeing and thus households incur medical costs. For these basic goods and services, households in the top income quintile spent 2.1 times more than households in the bottom quintile.

For spending on additional goods and services such as recreation, alcohol, household furnishings, clothing, and personal care, the expenditure ratio of high income households to low income households was only slightly greater (2.5). However, the largest difference occurred for expenditure on selected assets and liabilities where the expenditure ratio of households in the top quintile to those in the bottom quintile was 6.1.


Income
Income quintiles are formed by ranking all the households in ascending order by income (in this case equivalent disposable income, i.e. income after income tax and the Medicare levy have been deducted) and then dividing them into five groups, each containing 20% of all households in the population. In 1998-99, there were 1.4 million households in each of the five quintile groups.

Equivalent income has been used to form income quintiles. Equivalising adjusts actual income on the basis of the household’s characteristics, such as size and composition, to allow the standard of living of different households to be compared. For example, an adjustment is made for the difference that would exist in the standard of living between a couple with children and a couple without children who both receive the same combined income. OECD equivalence scales have been used in this article (for further information see Income Distribution, Australia 1999-2000, ABS cat. no. 6523.0).

Difference between income and expenditure Households in the bottom quintile appear to spend more than they earn. While the HES collects extensive data about expenditure and income, the periods that the data refer to are not strictly comparable. Furthermore, different groups of people at different stages of their life may finance expenditure from sources other than income. Households which run down assets (such as savings) could be using the proceeds to finance expenditure. Some households (e.g. households containing unemployed people) may run up debts with the anticipation of paying them off when financial circumstances improve.

Households sometimes report very low or even negative business income, but higher expenditure on goods and services. Negative business income will be reported when losses occur (i.e. operating expenses and depreciation are greater than gross receipts).


Low income households
To a large extent the differences between the expenditure of low and high income households is a reflection of the amount of income that they had to spend ($224 per week compared with $1,727) and reflects relative differences in standards of living. However, while some low income households experience financial difficulties and struggle to afford basic and additional goods and services, low levels of income do not always reflect a low standard of living.

The largest group among low income households were those with a reference person aged 55 years or over (44% of households in the bottom quintile). Older people generally have fewer dependants to support, reduced costs associated with going to work, and high levels of home ownership (see Australian Social Trends 1999, Economic resources of older Australians). In keeping with this, 47% of low income households owned their home outright. Such households tend to have lower than average housing costs, and therefore a greater proportion of their income available for other expenses.

However, in 1998-99, for 66% of households in the bottom income quintile, government pensions were the principal source of household income and 15% of low income households were renting from a State housing authority. Both of these forms of government assistance involve means testing or assessment of need.

Another target group for government assistance are lower income families with children (see Australian Social Trends 1999, Lower income working families). In 1998-99, there were 484,600 families with children in the bottom income quintile, representing over a third of low income households (11% of these families were one-parent families).

SELECTED CHARACTERISTICS OF LOW AND HIGH INCOME(a) HOUSEHOLDS, 1998-99

Income quintiles

Lowest 20%
Highest 20%
All households

Income
$
$
$
    Average weekly household gross income(b)
224
1,727
874

Principal source of household income
%
%
%
    Government pensions and allowances
65.9
0.4
27.2
    Wage and salaries
11.1
89.7
57.3
    Investment, superannuation and other private income
11.8
4.4
8.2
Work
    Two or more employed persons
11.5
64.2
38.7
    One or more retired persons
33.7
4.5
23.4
Tenure
    Owner without a mortgage
46.9
28.6
39.7
    Owner with a mortgage
15.5
42.3
29.7
    Renting from a private landlord
18.6
26.8
22.7
    Renting from a State housing authority
14.8
0.8
5.4
Selected household composition
    Lone person aged under 35 years
4.1
8.3
4.6
    Lone person aged 35-54 years
6.7
14.6
7.1
    Couple only, reference person aged under 35 years
0.7
14.9
5.2
    Couple only, reference person aged 35-54 years
2.7
14.8
5.9
    Couple family with children
23.7
23.2
33.4
    One-parent family with dependent children only
10.7
1.1
5.4
    Couple only, reference person aged 55 years and over
22.7
5.5
13.5
    Lone person aged 55 years and over
21.4
4.9
12.5

Age of reference person
years
years
years
    Median age of household reference person
52
42
45

(a) Based on equivalent income.
(b) Regular cash receipts before income tax or the Medicare levy are deducted.

Source: ABS 1998-99 Household Expenditure Survey.


Expenditure on basic goods and services
Expenditure on basic goods and services has slightly fewer discretionary qualities than expenditure on additional goods and services or on assets and liabilities, evidenced by it having the lowest expenditure ratio (2.1). The variation in expenditure between low and high income households reflects discretionary choice but also the differences in the characteristics of low and high income households.

In 1998-99, low income households spent $16 per week on fuel and power while high income households spent $19. This was partly a reflection of the fairly similar average household size for the bottom and top quintiles (2.5 persons and 2.2 persons respectively).

Like fuel and power, housing costs included some commodities where the difference in expenditure between low income and high income households was not great - for example, the expenditure ratio of renters in the top quintile to those in the bottom quintile was relatively small (1.4). Households in the bottom quintile were more likely to rent than households in the top quintile (33% compared with 27%). However, of renters in the bottom quintile, 44% rented from a State housing authority and paid an average of $60 per week. The difference between expenditure of private renters in the bottom quintile compared with the top quintile was relatively small, $128 per week compared with $173 per week.

In contrast to the relatively low expenditure ratio for rent, the expenditure ratio for mortgage interest was 4.5. However, expenditure is averaged across all households regardless of whether they spent anything on purchasing a house, and fewer households in the bottom quintile were purchasing their houses (16% compared with 42% in the top quintile). When expenditure on mortgage interest for purchasers is compared, the expenditure ratio was 1.6 with low income households spending $65 per week and high income households $108.

There was not a great deal of difference in the expenditure ratio for food for low and high income households (1.7). In keeping with this, meat, vegetables, fruits, and bakery goods all had expenditure ratios from 1.1 to 1.4. Nonetheless, within a food budget there are some clear choices that households can make. For example, high income households spent 3.6 times more on eating out and fast food than low income households.

The expenditure ratio for low and high income households for medical care and health expenses was 2.5. The largest difference in expenditure on medical costs was for accident and health insurance - with low income households spending $7 per week compared with $21 for high income households (a ratio of 3.1). This is consistent with the lower proportion of low income households covered by private health insurance than high income households (see Australian Social Trends 2001, Private health insurance).

The relatively high expenditure ratio between the top and bottom quintiles (2.7) for transport mainly reflected discretionary spending in motor vehicle purchase (a ratio of 3.6). This reflects the great range in prices of cars from inexpensive second hand cars to top of the range new motor vehicles. It is also consistent with the lower levels of car ownership in the bottom quintile (see Australian Social Trends 2001, Household amenities).

AVERAGE WEEKLY EXPENDITURE OF LOW AND HIGH INCOME(a) HOUSEHOLDS ON BASIC GOODS AND SERVICES, 1998-99

Income quintiles

Lowest 20%
Highest 20%
Expenditure ratio(b)

$
$
ratio
Current housing costs
66.80
140.20
2.1
    Rent Payments
32.90
47.50
1.4
    Mortgage repayments(c) - interest component
10.20
45.90
4.5
    House and contents insurance
4.20
7.90
1.9
    Repairs and maintenance payments to contractors
4.50
14.30
3.2
Domestic fuel and power
15.70
19.10
1.2
Food and non-alcoholic beverages
91.50
151.90
1.7
    Meals out and fast foods
15.70
56.60
3.6
    Meat (excluding fish and seafood)
13.40
15.20
1.1
Medical care and health expenses
19.00
46.60
2.5
    Accident and health insurance
6.60
20.90
3.1
    Health practitioner's fees (includes specialists)
5.40
15.60
2.9
    Medicines, pharmaceutical products and therapeutic appliances
6.20
8.70
1.4
Transport
62.90
169.50
2.7
    Motor vehicle purchase
18.70
67.50
3.6
    Motor vehicle fuel
18.1
30.8
1.7
Total average weekly expenditure on basic goods and services
255.90
527.30
2.1

(a) Based on equivalent income.
(b) Ratio of the expenditure of the highest quintile to that of the lowest quintile.
(c) For the purposes of buying or building the dwelling occupied by the household.

Source: ABS 1998-99 Household Expenditure Survey.


Expenditure on additional goods and services
After households have provided for their basic needs, there are still some other goods and services that are universally required such as clothing and footwear, appliances, and telephones. For households with school-aged children, education costs are also an essential expenditure. With the exception of expenditure on post-school education, all of these fairly essential items had low expenditure ratios - examples include telephone charges (1.5), appliances (2.0), school-aged education (2.1) and clothing (2.8). However, the different standard of living between the two quintile groups was evident in those items where there was more scope for discretionary spending.

Expenditure on recreation is an area that households can reduce when budgets are small, or increase when resources are more extensive. Low income households’ average weekly total expenditure on recreation ($48) was a third of high income households’ ($141). Within recreation spending, households in the bottom quintile spent $13 per week on holidays, representing 27% of their total expenditure on recreation. Households in the top quintile spent
$53 per week on holidays, representing 38% of their expenditure on recreation.

The amounts that low and high income households spent on sports fees and cultural fees also varied considerably. The difference between households in the bottom quintile and households in the top quintile was reflected in an expenditure ratio of 4.0. Some of this may be related to life-cycle stages, as the bottom quintile contains a higher proportion of households with a reference person aged 55 years or over compared with the top quintile (44% and 10% respectively). Older persons are less likely to participate in sport and less likely to attend cultural activities than younger persons. For example, in 1999, 50% of people aged 55-64 years attended a cinema compared with 79% of people aged 25-34 years. Lower attendance at cultural venues by older people was also apparent for museums, theatre, and animal and marine parks.1

Overall, households in the top quintile spent nearly four times more on alcohol and over six times more on wine. This difference in expenditure on wine can be partly explained by high income households purchasing not only greater quantities of wine, but also more expensive wine.

AVERAGE WEEKLY EXPENDITURE OF LOW AND HIGH INCOME(a) HOUSEHOLDS ON ADDITIONAL GOODS AND SERVICES, 1998-99

Income quintiles

Lowest 20%
Highest 20%
Expenditure ratio(b)

$
$
ratio
Alcoholic beverages
9.5
36.3
3.8
    Wine
2.0
12.3
6.2
Tobacco products
9.5
10.9
1.1
Clothing and footwear
17.2
47.4
2.8
Household furnishings and equipment
25.8
63.9
2.5
    Blankets, household linen and household furnishings
3.60
13.60
3.8
    Whitegoods and other electrical appliances
5.7
11.1
2.0
Household services and operation
32.4
48.0
1.5
    Telephone and facsimile charges
15.0
21.8
1.5
    Child care services
1.8
4.2
2.3
Recreation
47.50
141.30
3.0
    Home computer equipment
1.50
6.50
4.3
    Books, newspapers, magazines
5.30
10.10
1.9
    Sports fees and charges
2.00
7.90
4.0
    Cultural fees and charges
2.10
8.40
4.0
    Holidays
12.90
53.20
4.1
Personal care
7.80
20.70
2.6
Miscellaneous goods and services
32.90
90.30
2.7
    Interest payments on credit services
4.50
14.60
3.3
    Education fees for primary and secondary schools
4.00
8.50
2.1
    Post-secondary school education fees
2.9
10.6
3.7
Total average weekly expenditure on additional goods and services
182.60
458.60
2.5

(a) Based on equivalent income.
(b) Ratio of the expenditure of the highest quintile to that of the lowest quintile.

Source: ABS 1998-99 Household Expenditure Survey.


Expenditure on selected assets and liabilities
In 1998-99, households in the bottom quintile spent $28 per week on selected assets and liabilities, which was a sixth of the $170 per week spent by households in the top quintile. Expenditure on assets and liabilities includes repayments of the principal component of a residential home mortgage, payments towards superannuation and life insurance, repayments of the principal component of a mortgage on other dwellings, and expenditure on capital improvements to dwellings.

Many households secure their economic wellbeing through home ownership, which provides security of tenure and reduces housing costs in old age when incomes decline. Households in the bottom quintile spent $10 per week repaying the principal component of a mortgage on a home, while households in the top quintile spent $54. This reflected the higher proportion of households in the bottom quintile that owned their home outright or were renting.

Couple families with children are fairly evenly represented in both the bottom and the top quintiles (24% and 23% respectively). For low income families, the inability to secure future financial security through home purchasing can lead to long-term disadvantage. Couples with children in the bottom quintile were less likely to be making payments on a mortgage (29%) than those in the top quintile (42%), and when they were making payments, the average value was $22 per week compared with $65 per week (a ratio of 2.9). Of one-parent families in the bottom quintile, 11% were making payments towards the principal component of a mortgage.

In 1998-99, expenditure on superannuation for low income households differed considerably from that of high income households. The expenditure ratio for superannuation payments was 12.1, reflected in superannuation payments of $5 per week for low income households compared with $57 per week for high income households. However, retired people are not likely to make payments towards superannuation and 34% of low income households contained one or more retired persons.

A further 33% of low income households were also unlikely to be making superannuation payments because their principal source of income was a working-age government pension or benefit.

As payments towards superannuation impact on future standards of living of households, it is of note that couple families with children in the bottom quintile spent $11 per week on superannuation, compared with $102 per week for their counterparts in the top quintile. One-parent families in the bottom quintile spent less than $1 per week on superannuation (8% were making superannuation payments).

AVERAGE WEEKLY EXPENDITURE OF LOW AND HIGH INCOME(a) HOUSEHOLDS ON SELECTED ASSETS AND LIABILITIES, 1998-99

Income quintiles

Lowest 20%
Highest 20%
Expenditure ratio(b)

$
$
ratio
Mortgage repayments(c) - principal component
9.6
53.8
5.6
Superannuation and life insurance
4.70
56.7
12.1
Other capital housing costs
**13.40
**59.50
4.4
Total average weekly expenditure on selected assets and liabilities
27.70
170.00
6.1

(a) Based on equivalent income.
(b) Ratio of the expenditure of the highest quintile to that of the lowest quintile.
(c) For the purposes of buying or building the dwelling occupied by the household.

Source: ABS 1998-99 Household Expenditure Survey.


Endnotes
1 Australian Bureau of Statistics 1999,

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