Wealth or Net Worth
Wealth refers to economic resources in the form of the balance of assets and liabilities held by members of a household. The value of wealth, or net worth, is measured at a point in time, and is therefore a stock concept.
Wealth data from the Survey of Income and Housing (SIH) are compiled in accordance with internationally agreed guidelines for producing micro statistics on household wealth, as reflected in the OECD Guidelines for Micro Statistics on Household Wealth (OECD, 2013). This publication provides an internationally agreed set of standard concepts, definitions and classifications for micro wealth statistics and best practice for compiling and analysing wealth statistics.
Components of wealth
Wealth is comprehensively collected in the SIH. Common assets and liabilities are collected through detailed questions, and uncommon items are able to be identified and valued through questions about 'other assets' and 'other liabilities' not otherwise identified.
An asset can be viewed as a store of value that provides a benefit or series of benefits accruing to the economic owner by holding or using the asset over a period of time. Assets may be financial or non-financial.
Financial assets include:
- accounts in financial institutions, such as bank deposits and offset accounts
- superannuation accounts
- listed and unlisted shares and trusts
- the value of own unincorporated businesses
- the outstanding value of loans made to persons in other households or to businesses.
Non-financial assets include:
- residential and non-residential properties and land, not part of an unincorporated business
- consumer durables that are used repeatedly and for more than one year, such as vehicles, household furniture and appliances, clothes and other personal items
- art work and other collectibles
- intangible fixed assets such as intellectual property and computer software.
A liability is established when one unit (the debtor) is obliged, under specific circumstances, to provide a payment or series of payments to another unit (the creditor). All liabilities are financial in nature, and for all financial assets held by a household there is a corresponding liability held by another party.
Liabilities are primarily the value of loans outstanding including:
- borrowings from other households
- investment loans
- credit card debt
- debt on other loans such as personal loans to purchase vehicles, and study loans.
In the SIH, most assets and their related liabilities are collected separately, e.g. the estimated value of dwellings (owner-occupied and other property) are collected independently of the value of loans associated with these dwellings.
Asset and liability data can be collected on a net basis rather than collecting the value of each component. For the SIH, if a survey respondent owns or partly owns a business, they are asked how much they would receive if they sold their share of the business and paid off any outstanding debts. Therefore, the value of the assets and debt held by these businesses cannot be separately reported. This is the only type of asset collected on a net basis for the SIH.
While some assets, e.g. bank accounts, are collected from each person in households selected in the SIH, other assets and liabilities are collected from the household in total, including property and loans. Therefore, it is not possible to produce person level estimates of the total assets and liabilities owned by households.
Mean values of the detailed assets and liabilities collected in the SIH are available in the publication Household Income and Wealth, Australia, 2019–20 (cat. no. 6523.0).
Derivation of wealth/net worth
Household wealth is represented by the household's net worth. Net worth is calculated as the difference between the stock of household assets and the stock of household liabilities. Net worth is positive when the value of household assets is more than the value of household liabilities. Likewise, net worth is negative when household liabilities exceed household assets.
While there may be individual ownership of assets, the benefit of asset ownership is shared at least to some extent between members of the household. Therefore, for analysis of the economic wellbeing of both individuals and households, net worth of households is most appropriate.
Equivalised net worth
Wealth is often built up during a person's working life and then used during retirement when the composition of the household might be quite different. Therefore, unlike income, the main measure of household wealth, or net worth, is unequivalised. For this reason, any wealth analysis should take into account the impact of the population's age distribution. The age at which wealth is accrued is also important - due to the impact of compound interest or compounding value over time for many assets and liabilities. For more information see the 'Income' section of this publication.
However, when wealth is being used to support current consumption, or to identify households at risk of economic hardship, household wealth should be equivalised with the same scale used to equivalise household income and consumption. Equivalised household net worth is used in the ABS low economic resource measure and, for comparison purposes, is included in a small number of tables in output from the SIH.
Low wealth households
Low wealth households are those in the bottom quintile of household net worth. This includes households with nil or negative net worth.
Household debt can support the purchase of capital assets such as a dwelling or vehicle, or can provide short-term funds if a household experiences an unexpected large expense. However, high debt levels can leave households vulnerable to financial hardship if their economic circumstances change.
Analyses on debt ratios have been included in the output presented in the publication Household Income and Wealth, Australia, 2019–20. Two ratios are presented:
- debt to disposable income
- debt to assets.
Debt to disposable income ratios
Debt to income ratios focus on the ability of households to meet their ongoing obligations to service their debts, such as mortgage payments, student or car loan repayments or credit card repayments.
Debt to income ratios are calculated as: total household debt divided by annualised disposable household income. Debt to income ratios can also be calculated using gross household income.
The ABS has chosen disposable income for use in debt ratios as it is the income available to households to meet their expenditure needs after paying their tax obligations, and therefore the income available to service their debt. Households with nil and negative income are included in the ratios. For this purpose they are allocated a nominal annualised disposable income of 10 cents. Households with zero or negative debt are not included in the calculation.
Consistent with the Organisation for Economic Cooperation and Development (OECD) definition of over-indebted households, estimates have also been provided of the proportion of households with debt three or more times their income.
Debt to asset ratios
Debt to asset ratios show the proportion of a household's debt compared to the value of its assets. Households with high debts compared to their assets are considered at higher risk of financial hardship if there was a sudden change in asset values, e.g. if house prices were to fall substantially.
The debt to asset ratio has been calculated as: household total debt divided by household total assets. Households with nil or negative total assets, such as those with a business that has liabilities greater than the value of its assets, are included in the ratios. For this purpose they are allocated a nominal total asset value of 10 cents. Households with zero or negative debt are not included in the calculation.
Consistent with the OECD definition of over-indebted households, estimates have also been provided of the proportion of households with debt worth 75% or more of the value of their assets.
Changes across cycles
The value and detailed composition of the wealth of households has been collected in the SIH since 2003–04, in all survey cycles except for 2007–08.
There have been some changes between surveys to improve measures of household wealth, in particular:
- from 2009–10, the value of public unit trusts and private trusts have been collected separately (previously the value of a household's trusts were collected as a combined total)
- from 2009–10 the value of silent partnerships has been specifically collected
- from 2011–12 the value of offset accounts has been specifically collected
- from 2017–18 credit card balances were asked of all persons aged 18 years or over (previously the household spokesperson reported these balances on behalf of all members of the household)
- from 2017–18 student loan balances were asked of all persons aged 15 years and over (previously the household spokesperson reported these balances on behalf of all members of the household)
The value of children's assets has not be collected since 2011–12.
In 2011–12 SIH output, the classification of assets was changed to align with the new OECD Wealth Guidelines. The main change compared to the classification used in output from previous SIH cycles was that the value of own unincorporated business (net of liabilities) and the value of silent partnerships became financial assets whereas previously they had been treated as non-financial assets.
Prior to 2013–14, household wealth estimates were published in the publication Household Wealth and Wealth Distribution, Australia 2011–12. Since 2013–14, detailed wealth data from the SIH have been published in the publication Household Income and Wealth, Australia.
Comparison of wealth between SIH and the Australian System of National Accounts
While the concepts of net worth used in the SIH have many similarities to the household net worth definition used in the Australian System of National Accounts (ASNA), they also differ in many respects.
The SIH wealth data are collected from households and can be used to analyse the distribution of wealth across the population and to compare levels of wealth between various population subgroups. The ASNA estimates net worth by using many different data sources and provides a comprehensive picture of the household sector as a whole, presented within a national accounting framework.
A detailed comparison of SIH and ASNA net worth estimates from 2003–04 to 2017–18 is available in the 'Comparisons with Australian Systems of National Accounts (ASNA)' section of this user guide.