4102.0 - Australian Social Trends, 2002  
ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 09/05/2002   
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Contents >> Income and Expenditure >> Expenditure: Households in financial stress

Expenditure: Households in financial stress

In 1998-99, around a third of households had some degree of financial stress.

An important focus of public policy is to ensure acceptable living standards for all Australians. A key element of people's living standards is the amount of discretion they have in their spending on goods and services to meet their needs. While ABS measures of income and expenditure provide information on the main economic resources available to most households to support their standard of living (and associated patterns of expenditure), these measures do not necessarily tell the full story of how households are coping financially. For example, households may go without key goods and services, or rely on actions such as drawing on savings, to meet financial commitments or to maintain other expenditure. The extent to which this occurs can provide an indication of the overall financial stress experienced by households. This article describes new experimental ABS measures of financial stress and looks at the characteristics of households with varying levels of stress.

Financial stress
Measures of household financial stress used in this article are drawn from the ABS 1998-99 Household Expenditure Survey. In the survey households were asked to report on a range of indicators (e.g. sought financial help from friends or family, or could not afford a special meal once a week) which were then used to measure household financial stress. Using these indicators, levels of financial stress were defined as follows.
  • No stress: one or no stress indicators reported.
  • Moderate stress: two to four stress indicators reported.
  • Higher stress: five or more stress indicators reported.

For more information see Australian Economic Indicators June 2001, Household income, living standards and financial stress (ABS cat. no. 1350.0).

Measuring financial stress
In the 1998-99 Household Expenditure Survey, the ABS included for the first time some questions which might indicate that households were experiencing some degree of deprivation or financial stress. The questions encompassed the items of expenditure some households may not be able to afford, as well as cash flow problems, lack of access to financial resources and accessing support outside the household. However, questions relating to these items can only give an indication of deprivation or financial stress as there is no established methodology to measure these concepts objectively.

The questions the ABS used drew heavily on previous Australian work done on living standards and subsequent survey pilot studies. To some extent the questions asked were either subjective in nature or required interpretation of objective responses. The ABS results discussed in this article should therefore be considered with this in mind.

Further, some of the indicators when reported on their own do not necessarily identify a household as having financial stress. Some actions such as not paying bills on time may be a convenient short-term financial management strategy, rather than an absolute inability to meet payments. Similarly, members of a household may not usually be able to afford a special meal once a week because they are saving for an overseas holiday. Also, some indicators (such as seeking assistance from a welfare or community organisation) appear to be more severe than others. The subjective nature of the indicators therefore makes it difficult to rank them in order of importance. As a result of this difficulty each financial stress indicator is given equal importance and much of the analysis in this article focuses on the characteristics of those reporting the separate indicators.

To permit analysis to be done at a broad level, the degree of financial stress experienced by households has been categorised according to the total number of indicators each household reported. Based on this approach, households were considered to be suffering from financial stress if they reported two or more indicators of financial stress. If none or only one of the indicators was reported, the household was not considered to be experiencing financial stress. This cut-off was selected as there was a natural break in the data at this point, with 17% of households reporting one indicator, and then a sharp drop to 9% for those reporting two indicators.

Based on these criteria, in 1998-99, around two-thirds of all households were not considered to be in financial stress. However, 2.4 million households reported two or more stress indicators and were regarded as being in financial stress. For 1.5 million of these households, the degree of financial stress was moderate (that is they reported two to four stress indicators) while nearly 900,000 were regarded as being in higher financial stress, having reported five or more indicators.


Source: 'Household income, living standards and financial stress' in Australian Economic Indicators, June 2001 (ABS cat. no. 1350.0).

Indicators of financial stress
Notwithstanding the subjective nature of individual spending preferences, the indicators used to determine financial stress did vary somewhat in severity - from, for example, not being able to afford leisure or hobby activities, to seeking assistance from welfare or community organisations. In 1998-99, the most commonly reported indicators were not being able to usually afford a holiday away from home once a year (reported by 27% of households), not being able to usually afford a night out once a fortnight (reported by 19% of households) and being unable to raise $2,000 in a week for something important (also reported by 19% of households). However these indicators were more likely to be reported as the sole indicator of financial stress, that is by households regarded as having no financial stress. For example, of those households who reported not being able to usually afford an annual holiday away from home, 18% had no stress (i.e. no other indicators were reported by these households) and 38% were in higher stress (i.e. they reported at least five indicators overall). This is consistent with the less 'essential' nature of some indicators compared with others.

There were other commonly reported indicators which when considered in isolation were less likely to indicate levels of financial stress. Notably, of the 15% of households which reported that over the previous 12 months they spent more money than they received, 29% had no stress and the proportion with higher levels of stress was one of the lowest of all indicators (38%). This may indicate that at least some of these households had savings on which they were drawing rather than relying on income.

On the other hand, there were some indicators which, if reported, were more likely to be associated with household financial stress and, in particular, with higher levels of stress. These included not being able to afford to heat the home, seeking assistance from welfare or community organisations, and going without meals. These were the three least commonly reported stress indicators in 1998-99 (each reported by around 2 to 3% of households). However, all of the households which reported not being able to heat their homes had some financial stress - 86% of them had higher levels of stress. A similar pattern occurred for households which reported seeking assistance from welfare organisations or going without meals.


Proportion of households reporting this indicator with -

Households reporting this indicator
Proportion of all households
No stress
Moderate stress
Higher stress
Financial stress indicators

Could not usually afford a holiday away from home for at least one week a year
Could not usually afford a night out once a fortnight
Unable to raise $2,000 in a week for something important
Could not pay electricity, gas or telephone bills on time
In the last 12 months spent more money than received
Could only afford second hand clothes most of the time
Could not usually afford a special meal once a week
Sought financial help from friends or family
Could not afford leisure or hobby activities
Could not pay car registration or insurance on time
Could not afford friends or family over for a meal once a month
Pawned or sold something
Sought assistance from welfare/community organisations
Went without meals
Could not afford to heat home

Source: 'Household income, living standards and financial stress' in Australian Economic Indicators, June 2001 (ABS cat. no. 1350.0).

While both high and low income households may experience financial stress, the likelihood of this occurring is much greater for low income households, particularly for higher levels of stress. In 1998-99, almost a third (32%) of households which had financial stress were in the lowest income quintile and 29% were in the second income quintile. In comparison, 14% of households which had financial stress were in the fourth income quintile and 6% were in the highest income quintile.

While households may be in a situation where they have trouble meeting financial obligations, this does not necessarily imply that they are in a situation of unacceptably low living standards. In many cases, financial stress may reflect the impact of obligations entered into with discretionary choice (e.g. investment in assets such as a home, cars or shares), short-term cash flow management techniques (e.g. through the deferral of payment where a penalty will not be incurred) or the practice of borrowing or drawing on savings to fund expenditure. This is supported by the nature of some of the financial stress indicators commonly reported by high income households. For example, in 1998-99, households in the highest income quintile most commonly reported that they could not usually afford an annual holiday away from home (8%), that they were not able to pay electricity, gas or telephone bills on time (6%), or that they had spent more money than they had earned in the past 12 months (6%).

Household income quintiles
Household income quintiles are formed by ranking all households in the population in ascending order by income (in this case equivalised disposable income), and then dividing them into five groups (or quintiles), each containing 20% of households. In 1998-99, there were 1.4 million households in each of the five quintile groups.

Equivalised disposable income is the income received from all sources after income tax and the Medicare levy have been deducted, which is then adjusted on the basis of the household's 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. The original OECD equivalence scale has been used in this article (for more information see Income Distribution, Australia 1999-2000, ABS cat. no. 6523.0).

The household income data from the 1998-99 Household Expenditure Survey used in this article do not incorporate subsequent revisions to initially published results. For more information see Australian Economic Indicators April 2002, Upgrading Household Income Distribution Statistics (ABS cat. no. 1350.0). These revisions do not substantially affect the analysis presented in this article.

In 1998-99, the proportions of households experiencing higher stress (i.e. reporting five or more stress indicators) were much higher for households in the lower income quintiles. In the two lowest household income quintiles 26% and 21% experienced higher levels of financial stress, respectively. This dropped to 10% in the third income quintile. Almost no households in the highest income quintile had higher levels of financial stress. Further, comparatively high proportions of households with low incomes reported the more severe financial stress indicators, compared with those households with higher incomes. These indicators included pawning or selling something (reported by 9% of households in the lowest quintile), seeking assistance from welfare or community organisations (8%), going without meals (5%), and not being able to heat the home (5%). For households with higher incomes (i.e. the highest three income quintiles combined), 2% or less reported these stress indicators.


(a) Based on equivalised disposable income.

Source: 'Household income, living standards and financial stress' in Australian Economic Indicators, June 2001 (ABS cat. no. 1350.0).

Life-cycle groups
The composition, needs and wealth of households change over time, as household members join or leave the workforce, children are born and grow towards adulthood, and assets are accumulated (for example, paying off a mortgage or contributing to superannuation savings). These changes often affect the ability of a household to cope financially, and the proportion of households in different life-cycle groups who are in financial stress largely reflects the impact of these changes. For example, in 1998-99, 72% (276,200) of lone-parent households with dependent children experienced financial stress, with 41% experiencing higher levels of financial stress. This is consistent with the low average incomes and the low rates of home ownership (resulting in proportionately high housing costs) of these households, compared with other life-cycle groups. Similarly, a comparatively high proportion of households containing a lone person aged under 35 years were in financial stress (43%). As with lone parents, this life-cycle group tends to have low income and high housing costs.

In contrast, comparatively low proportions of households where the reference person was aged 65 years or over had financial stress (20% for couple households and 25% for lone person households). While these households tend to have incomes in the lower income quintiles, they also have higher proportions of outright home ownership (and therefore lower average housing costs) compared with other life-cycle groups. Many households with reference people aged 65 years and over are eligible for a range of concessions, which further lower their general living expenses.

In 1998-99, the proportion of households containing couple families with dependent children only which experienced financial stress, was higher than average (38% compared with 34% of all households). Because of the large number of households in this life-cycle group compared with others, these households comprised more than a quarter (27% or 648,300) of households in financial stress. While more than half of couple families with dependent children only have both parents employed (consistent with a much lower proportion in financial stress compared with lone parents with dependent children), they also have the costs associated with providing for children and most commonly have mortgages which can result in high housing costs.


Source: ABS 1998–99 Household Expenditure Survey.

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