Stark divide between young and old as Australian household incomes and wealth stall

Poverty in Australia has declined, welfare reliance has stabilised and long-term poverty is becoming rare - but overall economic wellbeing is no longer improving, and households wealth has remained static, despite rising property prices, according to Australia’s most respected longitudinal study of economic wellbeing.

And there is a rapidly growing wealth divide between generations, with median wealth increasing by 61% among people aged 65 and over, compared to just 3.2% among people aged 25 to 34, since 2001.

This is the picture from the latest statistical report of the Household, Income and Labour Dynamics in Australia (HILDA) Survey, collected by the Melbourne Institute of Applied Economic and Social Research. Collected every year, HILDA is Australia’s only nationally representative household longitudinal study, and has followed the same individuals and households since 2001.

Stagnating household incomes and wealth

Perhaps best summarising the experience of Australian households since 2001 is the path taken by median income, shown in the figure below. The HILDA data shows that in the early years of this century, the median household income (after taxes, and adjusted for both inflation and household size) grew strongly.

However, since 2009 growth has stalled, with the median income stagnating at approximately $45,000.

HILDA data on household wealth, collected every four years since 2002, shows a somewhat similar pattern. Median household wealth grew strongly between 2002 and 2006, but has since grown very little - despite continued increases in house prices.

In some respects, Australia has handled this slowdown quite well. There has been relatively little change in income inequality since 2009, and measures of poverty have actually declined slightly in recent years. For example, the percentage of the population with an income less than half the median income was 10.3% in 2014, down from its 2007 peak of 13%.

Decline in welfare reliance

Furthermore, while HILDA shows that the large decline in welfare reliance among working-age people between 2004 and 2008 was arrested by the 2008 global financial crisis, welfare reliance has increased only slightly since 2008.

Nonetheless, it is clear that overall economic wellbeing is no longer advancing as it was prior to the global financial crisis. Financial pressures have also increased for families using child care and for those with private health insurance. These markets have experienced substantial real price increases, effects of which have been exacerbated by government policies which in recent years have acted to reduce subsidies.

HILDA correspondingly shows that households’ expenditure on these items has been rising faster than their incomes.

Winners and losers

There are, moreover, some concerning trends evident in the HILDA wealth data. The proportion of adults who are home owners has declined from 57% in 2002 to less than 52% in 2014, and on current trend will be below 50% by next year. There is an important intergenerational dimension to this decline: home ownership has declined from 39% to 29% among people aged 25 to 34, from 63% to 52% among people aged 35 to 44, and from 76% to 67% among people aged 45 to 54. There has been almost no decline in home ownership among older age groups.

Associated with this, but also strongly connected to changes in superannuation holdings and to a lesser degree, investment property ownership, has been a growing divide in wealth between the young and old.

Between 2002 and 2014, median wealth grew by 39% among people aged 55 to 64 and by 61% among people aged 65 and over. By contrast, median wealth grew by only 3.2% among people aged 25 to 34, 7.4% among people aged 35 to 44 and 10.8% among people aged 45 to 54.

HILDA also shows that particular groups in the community have continued to experience high rates of disadvantage over the entire period since 2001. Most notably, people with disability, poor general health or poor mental health have not fared well economically, and poverty rates among children living in lone-parent households have consistently been above 20%.

Long-term disadvantage

The longitudinal nature of the HILDA data further provides important insights into the prevalence and determinants of persistent or long-term disadvantage. Long-term poverty is in fact relatively rare, with 85% of poverty spells lasting three or fewer years.

That said, poverty is considerably more likely to be long term for people with disability, Indigenous people, immigrants from non-English speaking countries, the elderly, single people, people living in rural areas, and people with low levels of education.

Perhaps most surprising are HILDA’s findings on welfare reliance over the longer term. While only around 18% of people aged 18 to 64 receive income support payments in any given year, nearly 45% of people in this age range received income support at some stage in the 14 years to 2014.

Indeed, nearly 70% of all working-age people were at some stage in a household that received income support payments. Contact with the welfare system is therefore very high, but is typically only for relatively short periods, suggesting the welfare system in many cases works as a temporary safety net rather than as a long-term income source.

In 2014, new questions on “material deprivation” were included in the HILDA Survey to provide more direct information on the groups in the community faring worst economically. Among the findings were that 12% of households did not have $500 in savings for an emergency, 8% did not have home contents insurance because they couldn’t afford it, and 5% could not afford dental treatment when needed.

Consistent with findings using more traditional income-poverty measures, rates of deprivation were found to be highest among lone-parent families, Indigenous people and people with severe disabilities.

The more direct material deprivation approach does reveal, however, that the elderly have very low rates of deprivation, despite having high rates of income poverty. This suggests that income needs are lower for the elderly, for reasons such as their high rates of (outright) home ownership.

Implications for future policy

The detailed picture of the economic lives of Australians that is provided by the HILDA Survey is necessarily somewhat complicated. It is nonetheless clear that the current trajectories of income and wealth are in general much lower than in the early years of this century.

The HILDA Survey data suggest that the effects of this slowdown have to date been relatively equitably distributed, notwithstanding some concerns about trends in the wealth distribution. Of course, there is no guarantee that this will continue to be the case in future, particularly in the context of the need to reduce the government deficit.

The form that deficit-reduction policies take will be profoundly important to the distribution of economic wellbeing over coming years.