Income and wealth

Home-ownership and debt level among young home-owners

Many Australians aspire to own their own home. However, rising house prices have made purchasing a home less affordable, especially for young Australians, who typically have lower income and wealth than older Australians.

Wealth data from HILDA, which have been collected every four years since 2002, show that home-ownership among those aged 18 to 39 fell from 35.7 per cent in 2002 to 25.2 per cent in 2014. Fewer home-owners own their home outright as the proportion of those with home debt rose from 89.3 per cent to 94.1 per cent.

The Loan to Value Ratio, a risk-measure often used by lenders that relates home debts to values, rose to 58.3 per cent in 2014. Young Australians thus borrow more to purchase a home, possibly reducing their ability to deal with financial hardship. Particularly vulnerable are those with negative equity — they owe more than their home is worth; their proportion increased by 60 per cent, from
2.4 per cent in 2002 to 3.9 per cent in 2014.

As HILDA collects data from the same persons over time, it can be inferred that borrowing to purchase a home is not the only reason for increased levels of debt: 57.2 per cent of young home-owners accumulated additional home debt in the four years since 2002. The good news is that this proportion fell over time; it was 41.4 per cent for the 2010 to 2014 period.

Rebate review for Australian families

Babysit push for childcare payment, The Adelaide Advertiser, Adelaide, 28 Sep 2013

The HILDA data has found that rebates for babysitters, nannies and casual care would help free up working mums. The HILDA study has been cited as the first major study into the working hours of mothers using childcare. It was found that almost 40 per cent of women sending their preschool - aged children  to formal centres are also recruiting family and friends for extra help looking after their kids - revealing the extent of the juggle facing Australian families. Based on results from the study, an Education Department spokesman said the Productivity Commission would conduct an inquiry into the childcare  system, which would include a review of rebates.

Household wealth grew more slowly between 2006 and 2010, as people deserted shares

In 2002, 2006 and 2010, the HILDA Survey has obtained a measure of household wealth by asking a detailed set of questions on most financial assets, non-financial assets and debts.

The results have shown that the wealth of Australian households continued to grow between 2006 and 2010, but the pace of growth was considerably lower than between 2002 and 2006, reflecting weaker share and house prices than prevailed over the 2002 to 2006 period. Those aged 25 to 54 appear to have  been worst-affected by the slowing in house and share prices (see Table 1).

The family home continued to be the most important asset in household wealth in 2010. However, direct holdings of shares declined between 2002 and 2010, with the proportion of households holding any shares falling from 39 per cent in 2002 to 34 per cent in 2010.

Table 1: Average (median) wealth by age group ($ at December 2010 prices)


Household wealth

In 2010 the HILDA study collected information on households' financial assets and debts, allowing us to examine the 'net worth' (total assets minus total debts) of households. Research has found that couples aged between 50 and 70 years have the highest median net worth (nearly $900,000), while singles  aged between 30 and 40 years have the lowest median net worth ($50,000).

As might be expected, singles tend to have lower net worth than couples. However, it is notable that, in each of the three youngest age groups, the median net worth of singles is less than half that of couples, but in the two oldest age groups, it is more than half that of couples.


How do your finances stack up?


Australians with low income

  • Between 13% and 14% of people had low incomes each year (that is, they received less than half the income that a typical Australian received).
  • 10% of people had low incomes in three of the five years between 2001 and 2005.
  • Most people whose income fell to a low level had an increase in their income within one to two years.
  • Government pensions and benefits reduced the proportion of the population that would have been poor in all five years between 2001 and 2005 from 14.5% to 3.3%.
  • Income alone does not provide the complete picture of a person's financial situation - wealth and expenditure are also important factors in assessing this. As a result, we ask questions about these things as well from time to time.

Increases in wealth over the last four years

Builder The Living in Australia study is the first Australian study to measure changes in household wealth over time. We can now begin to understand how people create, grow and use their wealth.

In 2002, the average Australian household held around $210,000 in wealth (total assets less total debts). Only four years later, this wealth has increased to around $340,000, primarily driven by increases in housing assets.

It's a logical thought that wealth tends to accumulate with age and reach a maximum just before retirement. After retirement, people will usually live off some of their savings. The pattern in the change in wealth observed in the Living in Australia study between 2002 and 2006 is consistent with this.  Excluding those households where the household head had either started living with their partner or separated from their partner, we have calculated the typical change in wealth for the various age groups.

The three types of households that had the highest gain in wealth were, in order:

  • couples aged between 45 to 54 with children under 15;
  • couples aged between 55 and 64 without children under 15; and
  • couples aged between 35 and 44 without children under 15.

Couple households generally saw higher wealth gains than lone parent or single households. This was partly because there are multiple income earners in these households contributing to their household's savings and partly because they had more property wealth.


Financial hardship

As part of the Living in Australia study, respondents were asked to indicate whether they had experienced a range of difficulties arising from a shortage of money.

At one extreme, these data indicate that 3.6 per cent of respondents were unable to heat their home at some time during the previous 12 months, while fewer than 5 per cent had gone without meals. At the other extreme, almost 19 per cent reported that at some stage during the previous year they had  been unable to pay utilities bills on time.


A simple summary measure of overall financial hardship suggests that extreme poverty, as measured by whether an individual considers his or herself (and his or her family) to be 'poor' or 'very poor', affects around 4 per cent of respondents. Most respondents think of themselves as either 'very comfortable'  or 'reasonably comfortable' – 64 per cent – or 'just getting along' – 30 per cent.

Do the poor get richer?

Most people believe that the rich stay rich, middle income people stay in the middle, and the poor stay poor.

Panel studies in other countries, which are like the Living in Australia study, have cast considerable doubt on this belief. They have shown that most families who become poor are no longer poor within two to three years. In most countries the rich are a somewhat more stable group, but there is still a fair amount of mobility in and out  of this group.

The Living in Australia study has only been running for a short time, so it is too early to say to what extent poverty in Australia is long term or short term. But we can say whether people who were poor in 2001 remained poor in 2002.

The data shows that some people have been very upwardly mobile, with 14 per cent of people who were in the lowest 10 per cent of incomes in 2001 moving to the top half of the income distribution in 2002. Only 40 per cent of people who were in the lowest 10 per cent of incomes in 2001 remained there  in 2002. Almost one fifth (18 per cent) remained in the bottom half of the income distribution, but they were nowhere near poverty.


Does money buy happiness?

Common sense perhaps says that people who have more money are bound to be happier. Research has never really found this. The usual finding, not just in Australia but in all Western countries where the issue has been studied, is that people with high incomes are only slightly more satisfied with their  lives as a whole. Also, it seems that extra income does not produce extra happiness if everyone becomes better off.

The new Living in Australia evidence on wealth changes the story in one important way. Almost all previous research has looked only at incomes. It seems clear from our new evidence that wealth actually makes a bigger difference than income to life satisfaction.

This can be seen in the following figure, which shows life satisfaction against household wealth and income. Life satisfaction clearly rises much more with household wealth than it does with income. Indeed, looking at income, life satisfaction does not change greatly between the poorest households  and the richest.

Overall, these results make a lot of sense. If you have assets to fall back on, then you can cope a lot better with the hard times when regular income is cut off. For example, a family can cope better with unemployment, the financial consequences of poor health, and of course retirement.

While money helps, it still makes only a relatively small difference to life satisfaction. It still takes very large increases in wealth to achieve the same increases in life satisfaction as, say, getting married or ending a period of unemployment and finding a job.


Does wealth influence health?

You may recall completing some questions in our self-completion questionnaire on your health and how it impacts upon your life. In general it seems we are a healthy nation. Almost half of the people in the study described their health as 'excellent' or 'very good'. An additional 35 per cent said it  was 'good'. Only three per cent of people described their health as 'poor'.

Health is an important area of research which overflows into many other areas of people's lives such as employment, income, the ability to take part in leisure activities, or for some, to maintain an independent living arrangement.

Looking at the graph below we see that health declines with age, as we would expect. Also people in the richest households are more likely to say that their health is excellent or good than people in the poorest households. This could be for two reasons. First, people can use their wealth to buy better  health, both in the form of better treatment and more healthy lifestyles. Second, people who are not particularly healthy will have been restricted in their ability to build up wealth over their lifetime. These findings provide further evidence of the need for income support for the poorest sections  of our society, and especially our aged population.


How wealthy are Australian households?

In 2002, the Living in Australia study involved what effectively was the first large scale survey of household wealth in Australia for over three decades. Previous estimates have been aggregates based on the National Accounts and have not enabled comparisons to be made between the wealth of different  types of households. So the figures here give the first detailed picture of the wealth of Australians.

The following table summarises the data on average household wealth by type of asset and debt. The table gives two types of averages. The mean is the usual type of average and is based on dividing the total wealth of Australians by the total number of households. But this gives a misleading picture  of typical wealth, because the assets of millionaires bend the mean upwards. So we also provide medians; the wealth of households right in the middle of the national distribution.

So Australian households have a mean net worth (i.e., assets minus debts) of $348,441, which comprises $410,859 of assets minus $62,418 of debts. The median or more typical level of net worth is around $186,500, comprising about $203,000 of assets minus about $17,000 of debts.

Housing and other property (holiday homes, investment properties) are our biggest asset. A typical household now has a house worth $180,000 and about $135,000 in housing equity. These substantial values reflect big increases in house prices in nearly all cities in recent years.

Wealth: Assets and Debts of Australian Households


Our second biggest asset lies in pension/superannuation funds (median = $18,000). This is a fairly small sum and, in any case, this type of asset is mainly held by middle-aged households whose members are still working. There is justifiable concern in governmental and other circles about the low level  of pension assets held by elderly retirees, a majority of whom have no private superannuation fund.

Businesses and farms are our third biggest asset but are only held by about 10 per cent of households. Shares, managed funds and other types of equity investment now form the fourth biggest asset of Australians, with a mean of $27,903 per household. However, a majority of households appear to hold  no investments of this kind (although many who did not report having equity investments will hold at least part of their superannuation in equities). The median household then has a car or cars worth $15,000, and just $7000 in the bank.

Another way of looking at assets is to divide them into financial and non-financial assets. Viewed this way, the median Australian household has $184,000 of non-financial assets mainly in housing, and $34,684 of financial assets mainly in superannuation. Note, though, that superannuation funds, although  classified as financial assets, are not really available for use as liquid funds unless one has already retired. So most households have quite limited liquidity in the form of bank accounts, with a minority also holding some shares/managed funds.

How are wealth and income distributed?

Wealth in Australia, as in other countries, is very unequally distributed, and indeed much more so than income. The wealthiest 10 per cent of households have a mean net worth of $1.56 million, with the median being $1.19 million. The wealthiest 5 per cent actually average $2.15 million, with a median  of $1.65 million. To be precise, 7.0 per cent of households have net wealth over $1 million. One can be sure, though, that most of them would not regard themselves as millionaires.

At the other extreme, the least wealthy 10 per cent have debts which exceed their assets. They have a mean negative net worth of $5998, being $16,421 of assets and $22,419 of debts. Wealthy people have both bigger assets and bigger debts; the more you have, the easier it is to borrow.

The high degree of inequality of wealth holdings can be further highlighted by asking what percentage of total household wealth in Australia is owned by different groups. This is graphically presented below. This figure reveals that the wealthiest 10 per cent own almost 45 per cent of all household  wealth. By contrast, the richest 10 per cent of households, as measured by after-tax income, receive about 27 per cent of the total income that Australians earn. Overall, wealth inequality is over two-thirds greater than income inequality.

The Distribution of Household Wealth and Household Disposable Income by Decile


Viewed this way, the distribution of wealth may seem quite 'unfair'. It perhaps looks less unfair when one realises that wealth is mainly held by middle-aged working households who have saved for a good many years, have not yet retired, and so are not yet drawing down on their savings. Some of this  saving is compulsory through superannuation contributions. One comparison tells most of the story. If we look at the net worth of households headed by people in their fifties (the wealthiest age group), we find that they have a median net worth of about $400,000, mainly in the form of housing equity  and superannuation. This group also has the highest incomes and many are consciously saving for retirement. By contrast, households headed by people in their twenties have lowish incomes, heavy expenses if they are starting a family, and so little chance to save. They have a median net worth of about  $40,000, mainly in the form of housing equity.

The wealth of retirement-age households is particularly important, because they no longer have an earned income to rely on, and so are obliged to live on the old age pension if they lack assets. The typical household in this group has net worth of about one-quarter of a million dollars, which does  not look too bad on the surface, but is in fact made up of about $200,000 of housing equity and only around $50,000 of financial assets which can be used for current spending. Current government policy is to oblige people to save more for retirement through compulsory superannuation, but it will be many  years before savings accumulate and this policy has much effect on retirees' standard of living.

Finally, there is not a very strong linkage in Australia between wealth and income. That is, there are quite a lot of people with good incomes but not much accumulated wealth, and vice-versa. In some cases the reason is that wealth is inherited. But most wealthy people are 'self-made' men and women  who have accumulated their assets through successful careers and years of saving. Income, by definition, is what is earned now. It is ageing and saving which mainly account for the fact that wealth is much more unequally distributed than income.

Gender wealth gulf grows

Researchers using HILDA data to compare the wealth of single male and single female households between 2002 and 2010 have found that Australian gender wealth gap has widened sharply. The research found that "the disparity in average wealth between single men and single women across all age groups grew from $18,300 to $47,000 between 2002 and 2010".

Researchers say that "despite young women now outnumbering young men in our universities quite substantially, we are not seeing a dramatic shift in the gender pay gap or the gender wealth gap". The biggest disparity is between single men and single women under the age of 35, with the former earning 89 per cent more than the average of their counterpart.

Gap comparison between single male and single female households

Gap for workers