Widening gap between income & spending

Household income, wealth & expenditure

• Rich Australia: The Bureau of Statistics (ABS) has released a barrage covering the finances and spending patterns of Aussie families. Wealth continues to soar – and not just from the value of homes. And the gap between income and spending widened over the past six years.
• Less spending on essentials: The proportion of household spending spent on food, alcohol, clothing and tobacco fell to record lows in 2015/16.
• Affordability lifts: A raft of items has become more affordable over the past six years including food, clothing, transport and recreational goods.
• “Average” Aussie: The average household has property loans of $149,600 while the value of all property was on average $626,700.

Key findings

• Wealth remains at record highs
• The gap between income and spending has widened
• We are spending more on housing, education and health
• We are spending less on transport, clothing, recreation and alcohol
• Spending rose 15 per cent over the past six years; prices rose 14 per cent; the number of households rose by almost 7 per cent
• The number of people per home has consistently risen over the past decade.

What does it all mean?

• It is simply too much data to quickly absorb. But given that some of the figures are only published every six years then there will be plenty of time to key in on the major changes. What is clear is that Australians are not spending like there’s no tomorrow – preferring instead to “invest” in the family home or squirrel more money into financial assets.
• In just the two years to 2015/16, average wealth rose by $94,100. Property values rose by $78,200 and financial assets rose $44,600 while debt rose just $19,100. It is realistic to assume that the lift in debt produced a far greater lift in the value of assets.
• Over the past six years, weekly spending by Aussie families has risen just 15 per cent while prices have risen around 14 per cent. Overall this suggests little change in the number of goods and services bought per household.
• Aussies are largely to blame for the fact that housing has become less affordable over time. Simply income has outpaced prices of a raft of goods like food, clothing and transport. This has meant more dollars are left over and many Aussies have decided to put these funds into the family home as well as investment properties.

What do the figures show?

Household spending & income 2015/16 versus 2009/10

• Weekly household spending rose 15.3 per cent over the past six years from $1,236.28 to $1,424.03.
• The biggest increase in spending was by Education (up 43.5 per cent) ahead of household services & operation (up 29.6 per cent) and domestic fuel & power (up 29.6 per cent).
• Spending on alcohol fell 1.2 per cent and clothing and footwear fell by 1.4 per cent.
• The proportion of spending devoted to food, clothing, alcohol and tobacco fell to a record low of 22.8 per cent.
• Over the past six years household income has lifted by 24 per cent (disposable income up 19.6 per cent), ahead of the 15.3 per cent lift in spending.
• Recreational goods have become more affordable together with food, clothing, transport, furnishings and communication.
• The average Australian family has wealth (assets less liabilities) totalling $929,400. Assets total $1,097,400 and loans average $168,600.
• Property assets are valued at $626,700 per household with property loans averaging $$149,600.
• Over the past decade average superannuation assets have lifted from $108,500 to $188,400.
• The average value of shares per household is $25,000 while $49,300 is held in the bank and another $9,100 is held in offset accounts.

What is the importance of the economic data?

• Detailed data on household expenditure is only published by the Australian Bureau of Statistics every six years. Detailed data on household income and wealth are generally published every two years. Clearly, knowing where the money comes from and where it goes to is important for businesses, governments and the Reserve Bank policymakers.

What are the implications for investors?

• While consumers don’t feel wealthy, the latest data suggests otherwise. Wealth is at record highs, incomes are outpacing prices, key purchases have become more affordable – like food – and consumers have more choices about where to put their money.
• Retailers should be encouraged by the latest data that shows household balance sheets to be in good shape.
• Understandably families have taken on more debt at lower interest rates, supported by higher wealth and income. But the extent of future changes in spending and income will be determined by more modest wage growth than in the past.
• The Reserve Bank can comfortably sit on the interest rate sidelines.
• The increase in the number of people per home suggests children are staying at home longer and the parents may also have their parents staying on the same property. The data confirms anecdotal evidence. In a big picture sense it means fewer homes need to be built.