House­holds forced to aban­don lux­u­ries and spend more of the bud­get on ba­sics

The Guardian Australia - - Opinion - Greg Jeri­cho

The lat­est House­hold Ex­pen­di­ture Sur­vey re­veals that in a pe­riod of stag­nant in­come growth Aus­tralians have al­tered their spend­ing to spend a greater share than ever be­fore on ba­sic items, and that the big­gest in­crease in spend­ing in the past five years has been on ed­u­ca­tion.

Every five years the ABS ex­am­ines how much and on what we spend each week. As the lat­est house­hold in­come and wealth data re­leased yes­ter­day re­vealed, in­comes have gen­er­ally fallen in the past two years and have been flat over the past five years.

The stag­nant real in­come growth has seen house­holds shift their spend­ing pri­or­i­ties away from lux­u­ries and dis­cre­tionary items.

In 2015-16, the big­gest spend­ing cat­e­gory for av­er­age house­holds was hous­ing costs – which in­clude rent, mort­gage in­ter­est pay­ments, rates, home and con­tent in­sur­ance and re­pairs and main­te­nance. Aus­tralian house­holds on av­er­age spent $279 a week on those costs, well in front of the $237 a week spent on the sec­ond­largest cat­e­gory of food and non­al­co­holic bev­er­ages.

The third-big­gest spend­ing cat­e­gory was trans­port – cost­ing $207 a week on av­er­age.

As has been the case since the early 1990s, spend­ing on tobacco was the low­est cat­e­gory – just $12.84 on av­er­age a week is spent.

Such a fig­ure re­veals of course the lim­i­ta­tions of “av­er­age spend­ing”. A 25 pack of cig­a­rettes will set you back be­tween $28 and $35 de­pend­ing on the brand, so clearly if you are still a smoker, you spend a lot more than $12.84 a week.

But th­ese fig­ures at­tempt to paint a pic­ture of Aus­tralian house­holds in gen­eral and in­form the cal­cu­la­tions of the quar­terly in­fla­tion fig­ures.

While hous­ing costs are the big­gest cat­e­gory, the area of spend­ing that has risen the most in the past five years is ed­u­ca­tion – the av­er­age of $43.86 spent each week is 44% more than was the case five years ago.

Of the broad cat­e­gories, only the av­er­age amount spent on tobacco and cloth­ing have fallen – re­flect­ing the con­tin­u­ing de­cline in the num­ber of peo­ple who smoke and the fall in the price of cloth­ing since 2009-10:

But nom­i­nal amounts spent on items doesn’t tell us a hell of a lot. What is more in­ter­est­ing is the break­down of spend­ing over time and across dif­fer­ent house­holds.

The ABS fig­ures high­light just how much Aus­tralian house­holds have shifted their spend­ing to­wards es­sen­tial items.

In 2015-16, house­holds on av­er­age spent 59.4% of their weekly bud­get on hous­ing, food, fuel and power, med­i­cal and health­care, and trans­port – up from 56.2% at the turn of the cen­tury:

When bro­ken down into broad cat­e­gories, we can see that house­holds on av­er­age spent 19.6% of their weekly spend­ing on hous­ing costs – up from 18% five years ago. Sim­i­larly, the large in­crease in the nom­i­nal spend­ing on ed­u­ca­tion has also seen the share of that spend­ing grow from 2.5% to 3.1%:

While spend­ing on tobacco has fallen over the years, so too has the share we have spent on al­co­hol. Back in the 1980s, Aus­tralian house­holds on av­er­age spent 3.4% of their weekly bud­get on al­co­hol – in 2015-16 it was down to a record low share of just 2.2%.

While there was a slight in­crease in the share of weekly spend­ing spent on food and non-al­co­holic drinks, on this as well we spend a lot less of our bud­get than we did in the past.

In the 1980s, house­holds spent 19.7% of their bud­get on food and drinks, now it is just 16.6%.

One of the big­gest growth cat­e­gories is med­i­cal care and health ex­pen­di­tures – in the 1980s we spent 3.9% of our weekly spend­ing on med­i­cal care, now that is up to 5.8%. That isn’t sur­pris­ing given the ag­ing pop­u­la­tion.

House­holds with the main res­i­dent aged be­tween 15 and 24 spent just 2.5% on av­er­age on med­i­cal care, com­pared with 8.3% by house­holds with those aged 65-74:

Younger house­holds also spend a greater share on com­mu­ni­ca­tion than older ones, but lest we think such young peo­ple are fling­ing their money around on the lat­est phone, they also spend a greater share of their weekly bud­get on hous­ing costs com­pared with house­holds with res­i­dents aged over 45.

The sur­vey also shows how in­come af­fects spend­ing, with the poor­est 20% of house­holds spend­ing much more of their bud­get on hous­ing costs, food and drinks, and fuel and power than other house­holds.

The poor­est 20% of house­holds spend 47% of their weekly bud­get on those three cat­e­gories com­pared with 40.2% by me­dian-in­come house­holds and just 34.4% by the rich­est 20% of house­holds:

Not sur­pris­ingly, this dif­fer­ence is echoed in spend­ing by those who gain most of their in­come from pri­vate sources com­pared with those who are re­liant upon govern­ment pen­sions and al­lowances:

The sur­vey also re­veals that those house­holds suf­fer­ing from overindebt­ed­ness spend much more of their in­come on hous­ing costs com­pared with other house­holds.

Such over-in­debted house­holds spend 24% of their bud­get on hous­ing costs com­pared with just 17% for those house­holds with a mort­gage but who are not over-in­debted:

But while house­holds have be­come more in debt, they have not be­come more sub­ject to fi­nan­cial stress.

The sur­vey found that 15% of Aus­tralian house­holds (ap­prox­i­mately 1.3 mil­lion) ex­pe­ri­enced four or more in­di­ca­tors of fi­nan­cial stress within 2015-16 – slightly down on 2009-10.

The ABS sug­gests a main rea­son fi­nan­cial stress has not in­creased in line with in­creased debt is the age­ing pop­u­la­tion. House­holds in fi­nan­cial stress tend to be younger, and sim­i­larly are more likely to have de­pen­dent chil­dren and be rent­ing – two as­pects that are more likely to be those of younger house­holds than older ones.

The lat­est house­hold spend­ing sur­vey con­firms flat in­come growth has had a big im­pact on our spend­ing habits. With real wages flat over the past four years house­holds have shifted their spend­ing from lux­u­ries to es­sen­tials with house­holds now spend­ing more of their bud­get on hous­ing costs and ed­u­ca­tion than ever be­fore.

Pho­to­graph: Alan Por­ritt/AAP

The lat­est House­hold Ex­pen­di­ture Sur­vey shows that the big­gest in­crease in spend­ing in the past five years has been on ed­u­ca­tion.

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