Financial stress in Australian households | KPMG | AU

Financial stress in Australian households

Financial stress in Australian households

Australia is recognised globally as a standout economy however with our economic prosperity are all income groups becoming better or worse off?

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Partner, Chief Economist

KPMG Australia

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As an economy we not only skirted the worst parts of the downturn associated with the Global Financial Crisis, but rather we continued to lift our standard of living while the rest of the world was in economic turmoil. The ‘rising tide’ of our economic prosperity has been driven in part by the increase in the global demand and prices paid for our commodities and the growth in our population.

Despite this rosy picture social commentators are suggesting while various aggregate measures show an overall lift in our prosperity, there is a growing proportion of the population who are being ‘left behind’. Simply, while the pie might have grown, there is a perception that not everyone has received their ‘fair share’ of the gains.

KPMG has used data from the Australian Bureau of Statistics Household Expenditure Survey and analysed confidentialised unit record data from the Household, Income and Labour Dynamics in Australia Survey to review the incomes and spending patterns of Australian households to gain insights into the living standards of various income groups and whether they are becoming better or worse off. The results are surprising and contrary to conventional wisdom.

Some key findings:

The ‘have-nots’ – Around 10 to 15 percent of households appear to be consistently unable to pay bills and debts as they fall due. These are the ‘have-nots’. While their share of all households has not risen over the past decade or so, they comprise nearly 1.4 million households.

The ‘have-nothings’ – Households who live with entrenched disadvantage – unable to afford heating and meals, need to pawn possessions or require assistance from welfare organisations – appear consistently to represent about 3 to 5 percent of our society.

While the proportion of households in the ‘have-nothing’ category does not appear to have risen over time, through normal population growth they now constitute about 460,000 households. Since the turn of the century, more than 90,000 households joined the ‘have-nothings’.

The ‘have-nots’ are getting Into risky investment properties – The bottom 20 percent of households has recorded the highest rate of growth in investment income at 8.5 percent per annum, compared to about 2.3 percent per annum on average for the remaining households. This increase reflects a greater exposure to investment activities over the past decade, such as negatively geared property investment, which is confirmed by the substantial increase in value of second mortgage payments being undertaken within this quintile.

While understandable that the poorest in our society are seeking to diversify and increase their incomes by other means, this income group is least able to take on the financial risk associated with geared investment activity.

The top 20 percent of households is the only cohort to have a greater relative exposure to investment income than the bottom 20 percent, but it has the highest levels of salaries and wages from which to buffer any downturn in investment returns if that were to occur.

Households have been progressively increasing their debt levels, and doing so at rates faster than the growth they have achieved in their disposable incomes.

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