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4102.0 - Australian Social Trends, 2006  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 20/07/2006   
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Contents >> Economic Resources >> Components of Household Wealth

Components of Household Wealth

In 2003–04, high wealth households had a mean net worth of $1.4 million, middle wealth households $296,000 and low wealth households $24,000. In many households the family home is a significant asset. The mean net value of owner occupied homes accounted for 39% of the net worth of high wealth households, 57% of the net worth of middle wealth households and 3% of the net worth of low wealth households. This article discusses the types of assets and liabilities accumulated by households with different levels of wealth.

The mean net value of owner occupied homes accounted for 39% of the net worth of high wealth households, 57% of the net worth of middle wealth households and only 3% of the net worth of low wealth households.

Household wealth is a net concept, and measures the extent to which the value of household assets exceeds the value of household liabilities. A household's wealth changes over time. It may be added to, for example through savings, and it may also be depleted by incurring liabilities or by liquidating assets and spending the proceeds on consumption items. Wealth (net worth) is important because it provides a level of economic security, enables people to borrow money, as well as directly generating income.(EndNote 1)

The types of assets or liabilities and ultimately the mean net worth of a household is related to the life-cycle stage of the householders. Households who are towards the end of their working life have often accumulated assets and paid off liabilities. Younger people have had less time to accumulate assets and may incur debts not directly associated with acquiring assets, for example, to pay for education (see Australian Social Trends 2006, Distribution of household wealth).

NET WORTH

This article focuses on three groups of households: low wealth (lowest quintile), middle wealth (third quintile) and high wealth (highest quintile) households, and examines the net worth of each of these groups. In 2003–04, low wealth households held an average of $35,000 worth of assets, middle wealth households $379,000, and the households with the greatest wealth on average held $1.5 million of assets. In terms of liabilities, low wealth households on average held $11,000 worth of liabilities, middle wealth $84,000 and high wealth households $104,000.

The larger amount of liabilities in the high wealth group are more than outweighed by higher assets with the asset to liability ratio far greater for high wealth households (14:1) than that for middle (5:1) and low wealth (3:1) households. The balance between assets and liabilities resulted in a mean net worth of $24,000 for low wealth households, $296,000 for middle wealth households and $1.4 million for high wealth households.

Estimates of household wealth (net worth)

Data in this article relating to wealth (net worth) are derived from the value of household assets less their liabilities collected in the ABS 2003–04 Survey of Income and Housing.

This article includes analysis by low, middle and high wealth household groups, based on net worth quintiles. To calculate quintiles, households were ranked in ascending order of net worth. This population was then divided into five equal groups (quintiles), each comprising 20% of the estimated population. Low wealth households are the lowest quintile, middle wealth households are the third quintile and high wealth households are the highest quintile of net worth. Each quintile contains about 1.5 million households.

Assets are owned by the members of the household, and provide economic benefits and include money held in accounts at financial institutions, the family home, other property and land, motor vehicles and home contents, amounts accumulated in superannuation funds, shares, trusts, debentures and bonds.

Liabilities require members of a household to make a payment or a series of payments. Property loans are liabilities which relate either to loans outstanding on owner occupied dwellings or on other property. Other liabilities include debts outstanding on study loans, amounts owing on credit cards, the principal outstanding on loans for vehicles and investments, and loans for other purposes.

Mean net value of own home is the value of the owner occupied dwelling less any outstanding loans on the dwelling.

The reference person for each household is chosen by applying the following selection criteria in the order given until an appropriate person is identified: one of the partners in a marriage or de facto marriage, a lone parent, the person with the highest income or the eldest person.

MEAN HOUSEHOLD NET WORTH - 2003-04

Low wealth households
Middle wealth households
High wealth households
All households
$'000
$'000
$'000
$'000

Total assets
35.3
379.4
1 483.6
537.1
Total liabilities
10.9
83.5
103.9
69.4
Mean household net worth
24.3
295.9
1 379.7
467.6
Mean net value of own home
0.8
170.1
536.5
209

Source: Household Wealth and Wealth Distribution, Australia, 2003–04 (ABS cat. no. 6554.0).
In 2003–04, over two-thirds (68%) of high wealth households were couple families, compared to 58% of middle wealth and 28% of low wealth households. Lone person and one-parent families with dependent children together accounted for over half (56%) of all low wealth households. The vast majority (91%) of low wealth households rented their home and just under one half (48%) relied on a government pension or allowance as their main source of income (see Australian Social Trends 2006, Distribution of household wealth).

NET VALUE OF OWN HOME

The primary residence was a very valuable asset for both high and middle wealth households. The mean net value of their own home accounted for 39% of the net worth of high wealth households and 57% of the net worth of middle wealth households. Low wealth households on average held only 3% of their net worth in their own home and were much more likely to be renting their dwelling than purchasing or owning it outright. The equity households hold in their own home has increased over time both in capital cities and in the balance of the state or territory.


MEAN EQUITY IN OWN HOME FOR CAPITAL CITY AND BALANCE OF STATE — 1994-95 to 2003-04
GRAPH: MEAN EQUITY IN OWN HOME FOR CAPITAL CITY AND BALANCE OF STATE — 1994-95 to 2003-04


In 1994–95 households in capital cities on average held equity of $156,000 and in the balance of state $109,000 in their own home. By 2003–04, this had increased to $340,000 and $213,000 respectively. This increase in equity was in part driven by increases in the value of homes with the established house price index (base year is 1989–90 where the index equalled 100) more than doubling from 113 in 1995 to 252 in 2005 (see Australian Social Trends 2006, Housing: national summary).

ASSETS

In this article, household assets are divided into financial assets, such as accounts held in financial institutions, value of shares and superannuation, and non-financial assets such as property and household contents. In 2003–04 high wealth households had their assets spread more widely among the asset types compared with middle and low wealth households. Across all households, housing accounted on average for 60% of all assets. Most households (70%) owned or were buying their own home.

FINANCIAL ASSETS

In 2003–04, financial assets accounted for 32% (on average $477,000) of the assets of high wealth households, 14% (on average $53,000) of middle wealth and 22% (on average $8,000) of the assets of low wealth households.

Balances in superannuation funds were the largest financial asset held by households. Superannuation has become much more widely held in the last 15 years with accumulating superannuation promoted by government policy. In 2003–04, around three-quarters (75%) of all households had some superannuation assets. The average value was $87,000 for these households; however, half had assets under $35,000.

In 2003–04, low wealth households held 15% of their assets in superannuation, middle wealth households 9%, and high wealth households 13%.

In 2003–04, the value of superannuation, as could be expected, increased with the age of the reference person in the household, peaking in the 55–64 years age group with an average value of $129,000. Households in which the reference person was aged between 65 years and 74 years and those over 75 years had lower superannuation values (average of $67,000 and $17,000 respectively) as they were more likely to be in retirement and instead of contributing to their superannuation were more likely to be drawing down on it.(EndNote 2) In addition, compared to younger cohorts, older cohorts were less likely to have accumulated wealth through superannuation throughout their working lives (see Australian Social Trends 2006, Distribution of household wealth).

MEAN HOUSEHOLD ASSETS - 2003-04

Low wealth households
Middle wealth households
High wealth households
All households
All households
Asset type
%
%
%
%
$'000

Financial assets (a)
    Value of accounts held with financial institutions
5.7
3.2
4.2
3.9
21.1
    Value of shares(b)
0.8
0.9
5.1
3.4
18.2
    Value of trusts
*0.3
0.4
2.6
1.7
9.2
    Value of own incorporated business(c)
0.4
7.2
4.2
22.8
    Superannuation
15.0
8.9
12.7
11.8
63.5
    Total financial assets
22.1
14.0
32.2
25.4
136.5
Non-financial assets
    Property assets
15.8
68.0
55.9
59.5
319.8
      Owner occupied
11.3
61.1
38.6
46.4
249.0
      Other property
*4.5
6.9
17.3
13.2
70.8
    Value of contents of dwelling
45.9
12.6
5.3
8.8
47.4
    Value of vehicles
15.9
4.5
2.0
3.2
17.2
    Value of own unincorporated business(c)
*0.3
0.8
4.5
2.9
15.6
    Total non-financial assets
77.9
86.0
67.8
74.6
400.6
Total household assets(d)
100.0
100.0
100.0
100.0
537.1

$'000
$'000
$'000
. .
$'000
Total household assets
35.3
379.4
1 483.6
. .
537.1

(a) Includes value of other financial investments, children's assets and loans to persons not in the same household.
(b) Excludes own incorporated business.
(c) Net of liabilities.
(d) Includes value of debentures, bonds and other assets nec.

Source: Household Wealth and Wealth Distribution, Australia, 2003–04 (ABS cat. no. 6554.0).

Households also held other financial assets with low wealth households holding 6% (average of $2,000) of their assets in accounts in financial institutions, middle wealth held 3% (average of $12,000) and high wealth households held 4% (average of $62,000). High wealth households had their financial assets spread more widely than low or middle wealth households and included value in shares (5% of all assets) and their own incorporated business (7% of all assets).


MEAN SUPERANNUATION VALUE BY AGE OF REFERENCE PERSON — 2003-04
GRAPH: MEAN SUPERANNUATION VALUE BY AGE OF REFERENCE PERSON — 2003-04


NON-FINANCIAL ASSETS

The majority of the assets of low, middle and high wealth households were non-financial. Low wealth households had 78% of total assets ($27,000 on average) in non-financial assets, middle wealth households 86% ($326,000 on average) and high wealth households 68% ($1 million on average).


PROPORTION OF ASSETS IN OWN HOME BY CAPITAL CITY AND BALANCE OF STATE AND TERRITORY — 2003-04
GRAPH: PROPORTION OF ASSETS IN OWN HOME BY CAPITAL CITY AND BALANCE OF STATE AND TERRITORY — 2003-04


Across all households, the most valuable non-financial asset was their own home accounting for 46% of all assets. The proportion of assets in the household's own home peaked in middle wealth households (61%) and accounted for 39% of assets for high wealth and only 11% of the assets of low wealth households. High wealth households had a further 17% of their assets in another form of property, for example, holiday homes, vacant land and rental properties.

Across Australia, households in capital cities held more of their assets in their own home (50%) than did households in the balance of state (40%). This is largely due to an urban premium on house prices experienced in cities which affects the composition of the asset portfolios of households in different locations.(EndNote 2) The share of assets which is concentrated in housing in Australia is related to the large proportion of the population living in urban areas (in 2003–04, 64% of the population lived in a capital city). The differential between the proportion of assets households hold in their own home between the capital city and the rest of state was greatest for Western Australia (17 percentage points), followed by South Australia and Victoria (both 12 percentage points) and New South Wales (10 percentage points). In Tasmania households in the capital city had 4 percentage points more of their assets in property than did households in the rest of the state.

In low wealth households (56% of which are lone person and single parent families), the contents of the dwelling accounted for the largest proportion (46%) of assets. Vehicles accounted for 16% of all assets in low wealth households, and only 4% of middle wealth and 2% of the assets of high wealth households.

Assets, net of liabilities, associated with a business (incorporated and unincorporated) were concentrated in high wealth households (12% of all assets of these households).

LIABILITIES

In this article, household liabilities are divided into those relating to property, and other liabilities unrelated to property such as amounts outstanding on credit cards. Over all households, property loans accounted for 86% of total liabilities, comprising 58% for loans for owner occupied dwellings and 29% for other property.

MEAN HOUSEHOLD LIABILITIES — 2003-04

Low wealth households
Middle wealth households
High wealth households
All households
All households
Liability type
%
%
%
%
$'000

Property loans
Principal outstanding on loans for owner occupied dwellings
29.4
74.0
34.9
57.6
40.0
Principal outstanding on other property loans
*11.9
16.0
51.0
28.7
19.9
Total property loans
40.4
90.1
85.9
86.3
59.9
Other liabilities
Debt outstanding on study loans
18.3
1.1
1.0
1.7
1.2
Amount owing to credit cards
11.0
2.3
2.4
2.7
1.9
Principal outstanding on loans for vehicle purchases (a)
20.2
3.6
1.7
3.9
2.7
Principal outstanding on investment loans(b)
**2.8
1.0
7.7
3.5
2.4
Principal outstanding on loans for other purposes(c)
7.3
1.9
1.4
2.2
1.5
Total other liabilities
59.6
9.8
14.2
14.0
9.7
Total household liabilities
100.0
100.0
100.0
100.0
69.4

$'000
$'000
$'000
. .
$'000
Total household liabilities
10.9
83.5
103.9
. .
69.4

(a) Excludes business loans.
(b) Excludes business and rental property loans.
(c) Excludes business and investment loans.

Source: Household Wealth and Wealth Distribution, Australia, 2003–04 (ABS cat. no. 6554.0).

PROPERTY LOANS

The balance among the type of liabilities held by households differed for the three levels of wealth. Just as the share of the households own home in total assets was the highest for middle wealth households, so too was the share of loans on this home in total liabilities. Almost three-quarters (74%) of all of the liabilities of middle wealth households related to loans on their own home with a further 16% relating to loans on other properties. By comparison, high wealth households had a smaller proportion of their liabilities relating to their own home (35%) compared to middle wealth households, but more relating to other property (51%). Low wealth households had less than one-third (29%) of their liabilities relating to a home loan and only 12% relating to loans on other property.

OTHER LIABILITIES

Over two-thirds (69%) of high wealth households had credit card debt compared to 59% of middle wealth and 38% of low wealth households. While fewer low wealth households had credit card debt, those who did on average had a similar amount owing ($3,200) to both middle ($3,400) and high wealth households ($3,700).

In 2003–04, around 15% of low wealth, 10% of middle wealth and 9% of high wealth households had a study loan. The average amount owing was greater in low wealth ($13,300) than in middle ($9,400) and high wealth ($11,000) households. On average, personal debt in study loans and credit cards accounted for around 30% of all liabilities in low wealth households with middle and high wealth households only holding around 3% of their liabilities in personal debt. Low wealth households held a much larger proportion of their liabilities in loans for vehicles (20%) than did middle (4%) and high (2%) wealth households. High wealth households had a greater proportion of their liabilities relating to investment loans (8%) than did middle wealth households (1%). This is consistent with high wealth households being in a better position to borrow money to invest.

ENDNOTES

    1. Headey, B, Marks, G, and Wooden, M, 2004, The structure and distribution of household wealth in Australia, Melbourne Institute Working Paper no. 12/04, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, viewed 26 June 2006, <http://www.melbourneinstitute.com/labour/ inequality/household_wealth.htm>.
    2. Kohler, M, and Smith, K, 2005, Housing and the household wealth portfolio: the role of location, Research discussion paper 2005–10, Economic Research Department, Reserve Bank of Australia, viewed 26 June 2006,
    <
    http://www.rba.gov.au/PublicationsAndResearch/RDP/RDP2005-10.html>.


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