DEPRIVATION AND FINANCIAL STRESS INDICATORS

INTRODUCTION

While income and wealth statistics can describe the economic resources available to people to provide command over goods and services in aggregate, and expenditure statistics can describe people’s associated consumption patterns, there are other issues that are relevant to understanding living standards. For example, a person’s poor state of health or limited access to education facilities may lead to greater expenditure addressing their particular situation, and relatively less expenditure on other basic necessities of life, than is achieved by other people who earn similar incomes or who are spending, in aggregate, about the same amount. In attempting to identify which households have the lowest economic wellbeing, it is therefore useful to also consider indicators that more directly identify households with poor economic outcomes. The HES collects data relating to deprivation and financial stress for this purpose and summary results from the 2015-16 financial stress data can be found in Household Expenditure Survey, Australia: Summary of Results, 2015-16 (cat. no. 6530.0).


DEPRIVATION INDICATORS

The specific indicators of deprivation, i.e. the items of expenditure considered to be some of the ‘basics of life’ that deprived households may not be able to afford are:

• a holiday for at least one week a year;
• a night out once a fortnight;
• to invite friends or family over for a meal once a month;
• a special meal once a week;
• leisure or hobby activities; and
• new clothes most of the time.

These items were the six deprivation indicators, out of 37 collected for the Deprivation Standards Project (Travers and Robertson, 1995), that were most highly correlated with an alternative, factor-based index of deprivation compiled in that project report. This index was derived from a wide range of indicators including the 37 ‘basics of life’, shortage of money (cash flow, access to finance, budget management), dissatisfaction with home and life, access to important places and perceptions of changes in standard of living.

It is important to note that the indicators included in the ABS survey are not the most fundamental ‘basics of life’ that were included in the full list of 37. When the social security clients surveyed for the Deprivation Standards Project were asked to rate the 37 ‘basics of life’, only one of the six indicators used in the ABS survey – affording leisure or hobby activities – rated above the mean score of importance for that target group.

Four of the six indicators selected by the ABS were ranked 30th or lower in order of importance in the Travers/Robertson report. However, the most highly ranked indicators in this report included such things as medical treatment and a bath or shower, where most clients had access to such goods and services. The six indicators included in the HES were highly correlated with the factor based index and therefore act collectively as a point of differentiation between the deprived and the more fortunate in society.

Given the nature of the indicators chosen, care needs to be exercised in interpreting individual responses in isolation from other responses provided. All individuals have their own priorities and consumption preferences and may choose quite different patterns of expenditure from a socially accepted norm of the 'basics of life'. For example, a household may observe that it ‘cannot afford’ items specified in one or more of the chosen indicators (e.g. meals out or hobbies) because it devotes a considerable proportion of its budget to saving for an overseas holiday. If the household can afford an overseas holiday, however, it is difficult to envisage the household as deprived, even if it chooses to forego expenditure that other households might consider basic.

The relevance of the selected indicators as a measure of deprivation to selected population groups can also be tested by observing the take-up rate of the indicators by households with higher incomes. In establishing whether households could afford each of the selected basics of life activities, the survey first asks whether or not households usually had the basic item and, if not, whether it was because they could not afford it or because they did not want it. Those households where age and disability support pensions are the main source of income can be used as an example of where significant changes in income levels did not significantly increase the take up of some of these ‘basics of life’.

In the 1998–99 HES, the proportion of these pension recipients stating that they could not afford to have friends or family over for a meal once per month drops from 13% in the lowest income quintile (i.e. the bottom 20% of households in terms of income) to 9% in the third quintile (i.e. the middle 20% of households in terms of income). At the same time, the proportion of these welfare recipient households engaging in this activity only rose from 52% in the lowest quintile to 54% in the third quintile. Largely offsetting the decrease in ‘deprivation’ as incomes rise was an increase in the number of households stating that they did not want this activity.

A similar pattern was observed in the 1998–99 HES for the criterion of having a special meal once a week, where an increase in take up of the activity, from 35% to 40% in moving from the lowest to the third quintile, was accompanied by a fall in the incidence of deprivation (from 22% to 14%) and an increase in those that identify as not wanting the activity (up from 22% to 30%). For the criterion of having a night out, the large fall in observed deprivation (from 33% to 15%) in moving from the lowest to the third quintile is accounted for by some increase in take up (from 29% to 36%) and a larger increase in those not wanting it (up from 19% to 28%). However, if only 36% of these income recipients in the third quintile engaged in the activity, nearly as many did not want it and only 15% said they can’t afford it, there is a question of how ‘basic’ it is.

It is possible that the answer of ‘can’t afford it’ may be a default answer for lower income groups which do not need to consider preferences across a wide range of activities that cannot be afforded, but such a default response becomes less relevant as incomes rise. Therefore the deprivation indicators chosen may not be an independent test in themselves to benchmark against income, and the nature of the answers given may be very highly correlated to income levels.

It would be possible to apply preference weights to a wider group of expenditure items for each household to identify ‘basic’ items, based on each household’s perceptions of importance, or develop weights for particular income and population groups, or overall population weights as was done in the Deprivation Standards Project. However, the costs of collecting this additional information and the respondent burden in doing so was not considered warranted by the ABS. Instead, the ABS has focussed on compiling unweighted deprivation indicators most highly correlated with the Travers/Robertson factor–based index, together with unweighted financial stress indicators, so that wider perspectives on deprivation and financial stress can be considered.


FINANCIAL STRESS INDICATORS

The financial stress questions asked in the HES relate to cash flow problems and financial resources. The nine specific financial stress indicators are:

• household spends more money than it gets (over the past 12 months);
• unable to raise $2,000 in a week for something important;
• could not pay electricity, gas or telephone bills on time;
• could not pay car registration or insurance on time;
• pawned or sold something;
• went without meals;
• could not afford to heat their home;
• sought assistance from welfare/community organisations; and
• sought financial help from friends or family.

As with the six ‘deprivation’ indicators, the nine financial stress indicators must also be used with caution. For example, the indicator 'could not pay electricity, gas or telephone bills on time' was reported by a relatively large proportion of households in the higher income quintiles, which suggests that the item does not necessarily reflect absolute incapacity to pay so much as a short deferral of payment. For many people it might be chosen as a short-term cash flow management technique if there is no immediate penalty when payment is made a little late. Similarly, the indicator that households have spent more than they received over the past 12 months is clouded by prospects for adjusting expenditure over time by saving/borrowing and on its own is not a good indicator. However, the higher incidence of such indicators for some groups of people would suggest that those groups have greater cash flow and financial resource problems than groups of people with a lower incidence of these indicators.

It should also be noted that the choice households make between some of the indicators are likely to be affected by the composition of the household. For example, households with children are probably less likely to choose to go without meals when short of money than are single person households.

Travers, P. and F. Robertson, November 1995, Deprivation Standards Project, Flinders University of South Australia, Report prepared for the Department of Social Security.