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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.
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).
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.
MEAN HOUSEHOLD NET WORTH - 2003-04
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
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).
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.
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
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
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
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).
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
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.
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.
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,