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Distribution of Household Wealth
There is considerable variation in the net worth of Australian households. In 2003–04, mean household net worth ranged from $68,000 for the youngest households up to $740,000 for 'pre-retirement' households. This article discusses how household wealth is distributed across selected life cycle groups as well as between Australian capital cities. It examines the relationship between income and wealth as well as the characteristics of low, middle and high wealth households.
In 2003–04, mean household net worth ranged from $69,000 for the youngest households up to $740,000 for 'pre-retirement' households.
Children in high wealth households may have greater access to educational opportunities than those in low wealth households. Consequently, as young adults, they may have better job prospects and income earning capacity. They may also be able to access credit and build wealth using their parents' wealth as security or to benefit directly from low or no interest loans or gifts.
In 2003–04, the mean household net worth of all Australian households was $468,000. The median was substantially lower at $295,000, reflecting the relatively large proportion of households at the low end of the wealth distribution. While 17% of households had net worth of less than $50,000, fewer and fewer households fell into each $100,000 net worth range above this base level. Overall, 71% of households had net worth of less than $500,000 and around 10% of households had net worth of a million dollars or more.
DISTRIBUTION(a) OF HOUSEHOLD NET WORTH — 2003-04
WEALTH AND INCOME
Wealth and income are closely interlinked and are sometimes collectively referred to as the 'means' of living. A household may use its assets to generate income (see Australian Social Trends 2006, Components of household wealth). This could be cash income (e.g. in the form of interest, dividends, rent, superannuation pensions, profits from an unincorporated business) or income in-kind (e.g. the value of housing and amenities derived from the family home and contents). Household income can be used to purchase goods and services for day to day living, to acquire assets and to service debts. The more income a household has left after living expenses are met, the greater its capacity for building wealth, and the more wealth a household has, the greater its capacity to generate income.
SHARE(a) OF HOUSEHOLD NET WORTH AND GROSS WEEKLY INCOME — 2003-04
Notwithstanding the close relationship between wealth and income, wealth is distributed between households somewhat differently to income. In 2003–04, the wealthiest 20% of Australian households had 59% of total household net worth while the least wealthy 20% of households had only 1% of total household net worth. Income shares were less disparate, with the highest quintile receiving 45% of total gross household income and the lowest quintile receiving 5% of total gross household income.
The differences in the distribution of wealth and income partly reflect the common pattern of wealth being gradually accumulated throughout the working lives of household members and then being utilised during retirement. So, for most households, relative wealth and income levels tend to be closely associated with their life cycle stage. For example, many younger households have relatively low wealth and relatively high income while many older households are relatively wealthy but have low income. Also, couple family households tend to have more wealth and income than one parent families or lone person households of a similar age.
MEAN HOUSEHOLD NET WORTH — 2003-04
MEAN GROSS WEEKLY HOUSEHOLD INCOME — 2003-04
In 2003–04, mean household net worth ranged from $69,000 for the youngest households (reference person aged 15–24 years) rising steadily to $740,000 for 'pre-retirement' households (reference person aged 60–64 years) and falling in older households. Unlike wealth, household income rose sharply in younger households (reference person aged 15–29 years), reflecting the transition of many young people from full-time education to full-time work and the subsequent formation of young couple households with two incomes. This is a period in which households typically acquire assets such as motor vehicles and household durables and begin saving for a home deposit. By the time they reach their mid thirties many couples and singles have already bought their first home.
NET WORTH AND HOUSEHOLD CHARACTERISTICS OF SELECTED LIFE CYCLES GROUPS — 2003-04
In 2003–04, 28% of lone persons aged under 35 years owned their home (most with a mortgage) and their mean household net worth was $94,000. At $226,000, the mean net worth of couple households with a reference person under 35 years was more than twice that of their single counterparts, as was their rate of home ownership (57%), and their mean gross weekly income ($1,584 compared with $730).
Household income levelled off among 'thirty something' households (reference person aged 30–39 years), reflecting the practice of many parents, particularly mothers, taking time out of the workforce or working part-time while their children are young. In 2003–04, the mean gross household income of couples with dependent children was $1,368 (where the eldest child was under 5) and $1,486 where the eldest child was aged 5–14 years. The mean household net worth for these groups was $366,000 and $469,000 respectively. Despite having less income and larger households to support than young couple only households (reference person aged under 35 years) they had accumulated substantially more wealth. This is partly because they had had more time to purchase and furnish a home, to repay their home loans, and to grow other assets such as superannuation. In 2003–04 the average age of the household reference person in young families was 33 years (where the eldest child was under 5) and 39 (where the eldest child was aged 5–14 years) compared with 28 years in young couple only households.
In 2003–04 household income was highest for 'middle age' households (reference person aged 45–54 years), reflecting both the peak in individual earnings in this age group, and the higher labour force participation of parents in families with older children. In some cases older children are also working. For example, in 2003–04, the average age of the reference person in couple family households with dependent and non-dependant children only was 48 years. These households had an average of 3 employed persons; mean gross weekly income of $1,947; and mean household net worth of $588,000.
Among households with a reference person aged 55–64 years, income declined rapidly, as working children left the family home and early retirees left the labour force. However, wealth continued to grow. In 2003–04, the mean net worth of couple only households with a reference person aged 55–64 years was $895,000 (nearly four times as much as young couple only households); 69% owned their home outright and a further 21% were still paying off a mortgage.
Both income and wealth declined among older households, but not to the same extent. In 2003–04, households with a reference person aged 75–79 years had a mean gross weekly household income of $490 and a mean net worth of $538,000. This suggests that while most retain their own home, older households tend to run down other assets such as superannuation and savings to supplement relatively low post-retirement income. On the other hand, these older cohorts may not have accumulated high levels of wealth, especially superannuation, during their working lives.
CHARACTERISTICS OF HOUSEHOLDS IN SELECTED WEALTH GROUPS 2003-04
Not all households follow the typical life cycle progression from low to relatively high wealth. Some are interrupted along the way by unemployment, illness, family breakdown, catastrophic loss of property, etc. Some never make a start. For various reasons (e.g. permanent disability, poor job prospects, low earnings, prolonged unemployment) some may never have enough income to enable them to accumulate wealth. On the other hand, some may acquire substantial wealth early in the life cycle (e.g. family inheritance, life insurance, compensation, lottery winnings).
LOW WEALTH HOUSEHOLDS
The mean net worth of low wealth households (those in the lowest household net worth quintile) in 2003–04 was $24,000. Home ownership rates were very low in this group, with 91% of households living in rental housing (mainly private). Low wealth households whose principal source of income was wages and salaries received $1,023 per week, on average, and had a mean net worth of $30,000. Those households whose principal source of income was government pensions and allowances received an average of $382 per week and had mean net worth of $19,000. Almost half (48%) of low wealth households derived most of their income from government pensions and benefits.
Over half of low wealth households in 2003–04 were single income households; 39% were lone persons and 17% were one parent families with dependent children. The age profile of low wealth households was relatively young, with 45% having a reference person aged under 35. Most of these younger households are likely to accumulate more wealth in coming years. However, a significant proportion of low wealth households were at, or near, the end of the wealth accumulation cycle with little prospect of improving their situation. In 2003–04, 13% of low wealth households had a reference person aged 65 years and over and a further 8% had a reference person aged 55–64 years. Both these groups were highly dependent on government pensions and allowances as their principal source of income (96% and 72% respectively).
FAMILY COMPOSITION OF HOUSEHOLDS IN SELECTED WEALTH GROUPS - 2003-04
As the first of the large 'baby boom' cohorts approaches 65 years of age, the focus of much government policy is on improving the ability of Australians to support themselves financially in retirement. Legislation introduced in 1992, which requires employers to provide a minimum level of superannuation contributions for most employees, is an important step towards this end. Even so, many older people already nearing the end of their working lives, will not have accumulated enough superannuation (or other wealth) to enable them to forego the age pension in retirement. Some younger households may also have difficulty accumulating sufficient superannuation to fully fund their retirement, particularly those who experience extended periods without paid employment during their prime working years. In 2003–04, 39% of low wealth households with a reference person aged 35–54 years had no one in paid employment and received most of their income from government pensions and allowances. In all, 50% of low wealth households in this age group reported government pensions and allowances as their principal source of income.
PROPORTION OF LOW WEALTH HOUSEHOLDS DEPENDENT(a) ON GOVERNMENT PENSIONS AND ALLOWANCES - 2003-04
MIDDLE WEALTH HOUSEHOLDS
Households in the middle net worth quintile in 2003–04 had a mean net worth of $296,000. They had an older age profile than low wealth households and were mainly couples with dependent children (32%), couple only households (27%) and lone person households (25%).
The principal source of income for the majority (60%) of middle wealth households was wages and salaries. A further 30% were dependent on government pensions and benefits but, unlike the low wealth group, these were almost all older households, and owned their home outright. In all, 40% of (mainly older) middle wealth households owned their home outright and a further 52% of (mainly younger) households owned their home with a mortgage.
HIGH WEALTH HOUSEHOLDS
With a mean net worth of $1.4 million, high wealth households in 2003–04 were mainly couple only families (38%) and couples with dependent children (31%) and were older, on average, than their counterparts in the middle wealth group. Three in four couple only and lone person households in the high wealth group had a reference person aged 55 years and over.
Like middle wealth households, the principal source of income for most (57%) high wealth households was wages and salaries, but the proportion of self-funded retired households was much higher, reflecting higher ownership of income earning assets (see Australian Social Trends 2006, Components of household wealth). In 2003–04, 23% of high wealth households reported sources such as superannuation, interest, dividends, rents, etc. as their principal source of income. At $1,192 per week, the average gross household income for this group was more than double that of high wealth households whose principal source of income was government pensions and benefits ($482).
MEAN HOUSEHOLD NET WORTH, STATES AND TERRITORIES - 2003-04
There is considerable variation in household wealth between and within Australia's states and territories. In 2003–04, Sydney had the highest mean household net worth ($641,000) followed by Melbourne ($506,000) and Canberra ($505,000). Adelaide was the least wealthy capital city with a mean household net worth of $362,000, 57% as much as Sydney. Outside of the capital cities, there was slightly less variation in wealth between the states. Tasmania's balance had the lowest mean household net worth. At $289,000, this was 63% as much as the mean household net worth of the balance of Western Australia ($453,000).
In most states, capital city households were wealthier on average than those in the rest of the state. However, the situation was reversed for South Australia and Western Australia, mainly due to relatively high mean net values of businesses among balance of state households. While the combined mean net value of incorporated and unincorporated businesses was higher for balance of state households than for capital city households in all states, the ratio was particularly high in South Australia (5:1) and Western Australia (4:1). Also, these were the only two states in which the mean net value of 'other property' was higher for balance of state households than for capital city households.
In all states the mean net value of owner occupied dwellings was higher in the capital city than in the rest of the state. This occurred even though home ownership rates were as high or higher outside of the capital cities, and higher proportions of these homes were owned outright, than in the capital cities. For the most part, differences in the mean net value of owner occupied dwellings between and within states reflected differences in their estimated sale price. New South Wales had the highest mean net value of owner occupied dwellings — $341,000 in Sydney and $189,000 in the rest of the state.
New South Wales also had the largest gap in wealth between capital city and balance of state. In 2003–04, the mean net value of owner occupied dwellings in the NSW balance was 56% as much as in Sydney and the mean net worth of households in the balance of NSW was 69% as much as Sydney households.