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FEATURE ARTICLE LOW ECONOMIC RESOURCE HOUSEHOLDS
The distribution of wealth over the life cycle reflects the common pattern of wealth being gradually accumulated throughout the working lives of household members and then being utilised during retirement. The age grouping with the highest mean net worth ($1.1 million in 2011-12) was households where the reference person was between 55 and 59 years. Many of these people are nearing the end of their time in the labour force or have recently retired, that is, they are at the end of the main wealth accumulation period (Graph 2).
Household wealth is more unequally distributed than household income. People in the three lowest equivalised income deciles share 13% of all income, whilst people in the three lowest equivalised wealth deciles share only 3% of all wealth (Graph 3). People in the lowest equivalised household net worth decile had average equivalised wealth of $8,000 compared to the population average of $413,000 in 2011-12. Persons with low reserves of wealth to fall back on may face financial difficulty in times of need, such as during any period of reduced income or substantial unexpected expenses.
However, examining the net worth of households across the income distribution reveals some interesting results. Graph 4 compares the equivalised net worth of households by their equivalised disposable household income decile. It shows that the equivalised household net worth of persons in the first income decile was higher on average than the average equivalised household net worth of persons in the second and third deciles.
Further, while just over a quarter of persons in the lowest income decile were also in the lowest net worth decile, substantial proportions were in much higher wealth deciles, including over 40% in the top five deciles (Graph 5). People with low income but high levels of net worth are unlikely to be at risk of experiencing economic hardship, despite their low current incomes.
5. Persons in lowest equivalised household disposable income decile, By equivalised net worth decile-2011-12
The income measures used so far in this article can be broadened further by:
Imputed rent is an estimate of the value of housing services that households receive from home ownership or by households paying subsidised private rent or occupying their home rent free. Imputed rent estimates have been available separately for each SIH cycle from 2003-04.
The inclusion of imputed rent in income allows the economic circumstances of home owners and renters to be more readily compared. Including imputed rent in the income measure (equivalised disposable household income, including imputed rent) generally results in home owners and subsidised renters moving up the income distribution relative to persons in other tenure and landlord types.
Graph 6 shows the effect of adding imputed rent to income on the relationship between income and net worth. Before imputed rent is added to income, persons in the lowest decile of equivalised disposable household income have an average equivalised household net worth higher than the next two deciles of income. However, when imputed rent is added to income, and the income deciles are recalculated based on the new measure, the equivalised household net worth of persons is lowest for people in the lowest two income deciles.
Table 7 illustrates the impact of including imputed rent on the characteristics of persons in the lowest income decile. In 2011-12, 71% of persons in the lowest decile of equivalised disposable household income were also in the lowest decile of equivalised disposable household income including imputed rent. Despite the overlap between the two groups, the reordering of people in the distribution with the inclusion of imputed rent results in a relatively lower average age (down from 57 to 50 years) and a significantly lower mean equivalised net worth ($192,000 compared with $300,000) for people in the lowest income decile.
Couple only households and lone person households where the reference person is 65 years and over decreased from 22% of the population in the lowest decile when using equivalised disposable household income as the income measure, to 10% when imputed rent is included.
There are a number of ways to bring income and wealth data together to obtain measures of people's consumption possibilities. In this article, a low economic resource measure is used which includes people who are simultaneously in the lowest four deciles of both equivalised disposable household income (including private imputed rent) and equivalised household net worth. It therefore excludes from the population of interest people with either relatively high incomes or relatively high wealth, and as a result is more likely to correctly classify people most likely to be at risk of experiencing economic hardship compared to measures using income or wealth alone.
Low economic resource is a relative measure that classifies around 20% of the population to be in low income, low wealth households. The measure can be broadly contrasted with the 20% of the population in the low income and low wealth quintiles. However, the proportion of the population included in the low economic resource measure depends on the joint distribution of income and wealth, and may vary over time.
LOW ECONOMIC RESOURCE HOUSEHOLDS
In 2011-12, there were 5 million people in low economic resource households, that is 22% of all persons (compared with the 4.4 million people, or 20% of all persons, included in each of the low income or the low wealth groups) (Table 8).
Low economic resource households have, on average, more household members and more members aged under 18 than either the low income or low wealth groups, or the population as a whole. One parent families with dependent children are significantly over-represented in all of the low resource groups, compared with the population as a whole.
People living in low economic resource households have, on average, considerably lower incomes and wealth than the population as a whole (this group receives 52% of the national average income and have 13% of the wealth). They are also more than twice as likely to have government pensions and allowances as their main source of household income (44% of persons in the group, compared to 19% for all persons).
The majority of low economic resource household are renters (68%) or owners with a mortgage (27%). Only 4% of low economic resource households own their own home without a mortgage since such households have net worth that puts them above the levels that would place them in the low wealth or low economic resource groups.
CHANGES OVER TIME
Table 9 compares the characteristics and circumstances of low economic resource households in respect of 2003-04, 2005-06, 2009-10 and 2011-12 (comprehensive wealth data was not collected in 2007-08).
Mean equivalised disposable household income including imputed rent, for persons in low economic resource households increased from $399 per week in 2003-04 to $501 in 2011-12, a $102 or 26% increase in real income. Over the same time period, the average income for all persons increased by 29% ($217), from $753 to $970 per week. The increases for both groups were statistically significant between these two time points.
In real terms, mean equivalised household net worth for persons in low economic resource households has remained about the same between 2003-04 and 2011-12. The gap in wealth between persons in low economic resource households and the average for persons in all households has increased slightly since 2003-04 but remained about the same between 2009-10 and 2011-12. The average equivalised household net worth for all persons was over seven times that of persons in low economic resource households in both 2009-10 and 2011-12, compared with six times in 2003-04.
People living in low economic resource households are of particular policy and research interest because of their greater potential risk of experiencing economic hardship. This article has shown that a low economic resource measure, combining both low income and low wealth, provides a more accurate representation of the population potentially at risk, than can be achieved by simply using low income or low wealth alone. However, there are many other factors that need to be considered in determining whether individual people are actually experiencing economic hardship. For example a person's income and wealth strongly relates to their life cycle stage and may not reflect future incomes or potential for wealth accumulation.
The income, but not wealth, of low economic resource households have increased since 2003-04, the first year available for comparison. However, the mean income and wealth measures for all persons between 2003-04 and 2011-12 grew more than for people in low economic resource households, resulting in a widening gap between the low economic resource group and the population average.
The SIH confidentialised unit record files (CURFs) provide considerable scope for more expansive analysis of low economic resource households, including additional cross-classification of households and use of more complex statistical procedures. Data about income and wealth were collected in the 2003-04, 2005-06, 2009-10 and 2011-12 SIH, allowing for analysis of the joint distribution of these measures, as well as the classification of households into the low economic resource group.
The importance of the joint measurement and analysis of income, consumption and wealth for understanding the economic wellbeing of people and households has been highlighted internationally with the recent release in June 2013 of the OECD Framework for Statistics on the Distribution of Household Income, Consumption and Wealth. This publication, which was prepared by an international expert group working under the auspices of the OECD, and led by the ABS, presents an internationally agreed framework to support the joint measurement and analysis of micro-level statistics on household income, consumption and wealth.
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