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FINANCIAL STRESS AND SPENDING
DEFINING FINANCIAL STRESS
A household can be said to be in financial stress if they experience four or more indicators of financial stress within a 12 month period. There are two types of financial stress indicators: financial stress experiences and missing out experiences.
Financial stress experiences
Missing out experiences
FINANCIAL STRESS AND HOUSEHOLD CHARACTERISTICS
In 2015-16, 15% of Australian households (approximately 1.3 million) met this criterion for financial stress. As in previous years, the most commonly reported indicators of financial stress were the inability to afford a holiday for at least one week a year (23%), followed by an inability to afford a night out once a fortnight (17%).
Households in financial stress tended to be lone person households (28%) or couple families with dependent children (26%). They were more likely to be renting (57%) compared with those who did not report experiencing financial stress (21%). The majority of households in financial stress relied on either employee income (45%) or government pensions and allowances as their main source of income (48%). In comparison, 17% of households who did not experience financial stress derived their main source of income from government pensions and allowances. Households in financial stress also tended to be younger than those who did not experience financial stress, and than the national average (51 years). The average age of the household reference person was 49 years for households in financial stress, compared with 53 years for those not in financial stress.
Changes in the age profile of Australian households may help to explain longer term changes to financial stress. From 2003-04, the number of Australian households headed by someone 65 years or over increased by 40%, whilst the number of households headed by someone aged 15 to 24 decreased by 15%. Similarly, from 2009-10 to 2015-16, the number of households headed by someone 65 years or over increased by 23%, whilst the number of households headed by someone aged 15 to 24 decreased by 12%.
Since 2003-04, the proportion of households who did not report experiencing any indicators of financial stress has steadily increased.
Graph 1 - PROPORTION OF HOUSEHOLDS REPORTING FINANCIAL STRESS INDICATORS, 2003-04 to 2015-16
Source(s): Household Expenditure Survey, various years
DEFINING LOW, MIDDLE AND HIGH INCOME HOUSEHOLDS
Equivalised disposable household income (EDHI) provides an indicator of household incomes after taking into account personal income tax and household size and composition.
In this section, the spending patterns of households with different income are compared. For this comparison:
FINANCIAL STRESS AND SPENDING BY LOW, MIDDLE AND HIGH INCOME HOUSEHOLDS
While financial stress does not necessarily imply that a household has low income, households with less resources, and therefore less spending power, are more likely to report experiencing financial stress. In 2015-16, 61% of households in the lowest income group reported at least one indicator of financial stress in the past 12 months. In comparison, 44% of middle income households and 14% of households in the highest income group reported at least one indicator of financial stress.
Graph 2 - PROPORTION OF HOUSEHOLDS REPORTING FINANCIAL STRESS INDICATORS, by adjusted low(a), middle and high EDHI quintiles, 2015-16
Footnote(s): (a) Excludes the first and second percentiles
Source(s): Household Expenditure Survey, 2015-16
FINANCIAL STRESS AND BASIC/DISCRETIONARY SPENDING
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. In 2015-16, households reporting no financial stress indicators spent on average $1,561 per week on goods and services, whilst households in financial stress spent $978 per week.
The amount and proportion of weekly spending that households put towards basic versus discretionary expenditure also tends to be related to financial stress. Basic spending includes the key items essential to living (housing, food, fuel and power, medical and health care, and transport), while 'discretionary' spending refers to all other items which may still contribute to the household's standard of living.
In 2015-16, the amount that households spent per week on both basic and discretionary goods and services tended to decrease with increasing financial stress. Households with no indicators of financial stress spent on average $900 per week on basic categories, whilst households in financial stress spent $637. Likewise, households who did not experience an indicator financial stress spent an average of $659 per week on discretionary expenditure, and households in financial stress spent $339.
Not only does the amount spent per week on basic and discretionary goods and services tend to decrease with increasing financial stress, but the proportion spent on basic compared to discretionary expenditure also tends to decrease. Households in financial stress spent on average 65% of their weekly spending on basic goods and services and 35% on discretionary. In comparison, households with no stress indicators tended to spend proportionally less on basic (58%) and more on discretionary expenditure (42%).
Graph 3 - AVERAGE WEEKLY HOUSEHOLD SPENDING ON BASIC AND DISCRETIONARY GOODS AND SERVICES, by number of reported financial stress indicators, 2015-16
Source(s): Household Expenditure Survey, 2015-16
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