Incidence of Financial Distress

The following calculator using a model developed for the Household Income and Labour Dynamics in Australian (HILDA) Survey to derive the probability of financial distress for Australian households for the period 2002 to 2022.

The HILDA survey is an annual longitudinal survey that includes a deep investigation of 40000 households structure, financial circumstances, well being, work and life situations. As a longitudinal survey HILDA captures both the households current position but also the impact of life events on wellbeing including birth, schooling, employment, marriage, promotion, disablement, retirement and death.

In HILDA a wave is a cohort of households which are monitored over a number of years, before being replaced by a new cohort.

The following analysis is drawn from the latest annual statistical report on the 2021 survey results summary.

Indicators of Financial Stress

Financial Stress is defined as the difficulty that an individual or household may have in meeting basic financial commitments due to a shortage of money.

HILDA uses the same definition as the ABS Household Expenditure Survey, which includes survey questions where the household indicates at least two of the following are true:

Could not pay electricity, gas or telephone bills on time
Could not pay rent or mortgage on time
Asked for financial help from friends or family
Unable to heat home
Went without meals
Pawned or sold something
Asked for help from welfare/community organisations.

Persistence of Financial Stress

The HILDA survey has been undertaken annually since 2002. Fairly consistent over the course of the survey, financial distress has been included and evidence of persistence from year to year is strong.

Financial Distress Calculator

Regions

Given the significantly higher housing costs in the major capital cities, financial distress is generally higher in the major urban areas and is lower in regional cities and other areas of Australia.

Select a region:

Household structure

Different households have significant differences in the risk of financial distress. Generally couples have lower risk than singles which reflects the financial support provided by partners. Dependents increase the probability of financial distress, but only by a small amount.

Select a household structure type:

Change in Partnership

As expected hardship increases when partners separate, hardship does not decrease materially when individuals become partnered.

Select a change in partnership:

Disability

Mental health issues have the biggest negative effect on financial hardship.

Select a disability type:

Housing Tenure

Owning a home outright is associated with the lowest probability of financial hardship, in contrast private renters have the highest rates of hardship.

Select a housing tenure:

Life Events

Loss of employment has the most significant effect on financial stress, however victims of violence and illness are also significant factors.

Select a life event

Financial Stress over Time

Financial stress was highest in the period from 2002-04, declined significantly over the period of the GFC before rising modestly as interest rates increased in 2010.

Household income

Equivalised household income is the most significant determinant of the likelihood of financial distress. It increases steeply as household income is less than median income of $70,000. The effect is illustrated in the calculator, which illustrates the variation across income for the select household risk features.

Combined Risk Across Income Ranges

From the selected options above, the impact of income on financial distress is illustrated in the chart below.

References

Wilkins R, Vera-Toscano, E, Botha, F and Dahmann, S 2021, The Housholde, Income and Labour Dynamics in Australia Survey: Selected Findings from Waves 1 to 19, Melbourne Insitute: Applied Economic & Social Research, the University of Melbourne.