Australia needs a better way of measuring poverty and financial vulnerability, and this calculator may provide the answer.
When researchers analyse the financial wellbeing of households, they typically focus on the concepts of income and income poverty.
However, an Australian National University's associate professor, Ben Phillips, says that single focus on income can oversimplify the problem.
He says income plays an important role in determining financial wellbeing, but there are other important factors at play.
These include housing costs and tenure, wealth, disability, gender and age, labour force status, education status, where one lives, and household size and family type. All can contribute to a household's financial wellbeing or vulnerability.
And he has created a calculator that demonstrates that point.
He says the calculator predicts every household's risk of financial stress, and it lets people see how their own level of risk compares to other households in Australia.
How to use the calculator
The calculator asks you to provide 14 pieces of information about your household.
Its first question asks you what your household's weekly disposable income is.
If your weekly disposable income is $100, type in 100. If it's $1,100, type in 1100 (without a comma).
The next question asks you to provide the total value of your household's net wealth.
That means you should list the value of your household's savings account, superannuation balances, cars, boats, jewellery, etc., plus the value of your property and/or any investment properties, minus the debts your household owes for things such as mortgages, credit cards and other loans.
A rough estimate should be sufficient.
When you finish putting your other details into the calculator, press "calculate" and it will provide you with a summary.
Its summary will show your "actual financial wellbeing rank" with a number between 1 and 100.
The number 1 means your household is in the bottom 1 per cent of financial wellbeing (which indicates a very high risk of financial stress) and 100 means your household is in the top 1 per cent of financial wellbeing (indicating almost no risk of financial stress).
Here is the link: Financial Wellbeing Calculator.
What did you find?
In the section that says "your probability of stress", the number will be something between 0 and 1.
If the number is 0.653, it means there's a 65.3 per cent probability you could be experiencing financial stress of some kind.
Financial stress measures how hard it is for people to meet their expenses and have some money left over so that when an unexpected bill arrives they have the means to pay for it from their weekly income or savings.
What households are most at risk?
Dr Phillips said the calculator shows why simple, income-based measures of poverty can fail to capture someone's lived experience.
For example, a common measure of poverty says that, if you're trying to survive on an income that's less than 50 per cent of the median income, you're in poverty.
Many people meet that definition, but it doesn't mean their circumstances are the same.
Someone with that level of income could be a single parent, living in the private rental market, with no savings or superannuation, and with no car.
However, another person with that level of income may have no children, with some personal savings, and be lucky enough to own their own home.
These are two vastly different experiences.
And, importantly, their level of financial stress and their risk of financial vulnerability will be very different.
According to Dr Phillips, his model could be used by policymakers to better understand who is, and who isn't, likely to be in stress, but also to better understand which policy measures are more likely to help alleviate financial stress and improve the financial wellbeing of vulnerable Australians.
He says there are clear differences between the level of financial stress and vulnerability in Australia and simple measures of income poverty.
For example, around 33 per cent of households in Australia have some form of financial stress, while 12 per cent of households are estimated to be in poverty.
Of the households in poverty, around 53 per cent are in financial stress, while 6.4 per cent of households in Australia are in both poverty and financial stress.
"These results show that there is a correlation between poverty and financial stress but one does not imply the other," he says.
Some key findings in report
To accompany the financial wellbeing calculator, Dr Phillips has published a paper explaining his methodology, called Household Financial Stress and Financial Wellbeing in Australia.
That paper and the calculator — which were commissioned by Uniting Care Australia — were produced by Dr Phillips for ANU's centre for social research and methods.
The paper provides insights into the groups in Australia who are under the greatest financial pressure and here are some of its key findings.
Main source of income:
- Wage and salary, business, age pension and other income categories all have relatively low rates of financial stress (typically between 20 and 30 per cent of these households experience some form of financial stress)
- Since 1998, those households relying on working age pensions (disability, carer, and parenting payments) and JobSeeker experienced significantly higher rates of financial stress
- In 2019-20, 79 per cent of JobSeeker households were in financial stress – similar to 1998. Working age pension household financial stress rates increased from 67 per cent to 77 per cent.
Family Type:
- Financial stress rates for single parents in 2019-20 were much higher than other family types, with 63 per cent or almost 2 in 3 reporting some financial stress. This was an improvement on rates reported in 2003-04 (74 per cent)
- In contrast, couples with dependent children reported a financial stress rate of 33 per cent in 2019-20 compared with 38 per cent in 1998-99.
Tenure type:
- Financial stress rates are higher for renters and lowest for those who own their house outright
- Renter financial stress at 49 per cent is higher than purchaser stress at 28 per cent and 22 per cent for outright owners
- However, renter financial stress lowered between 1998-99 and 2019-20 (34 to 28 per cent).
Gender:
- Households headed by a female have a 39 per cent chance of financial stress, compared to 33 per cent for households headed by males.
Regions:
- Regional Australia tends to have moderately higher rates of financial stress, when compared to capital city regions, with 34 per cent in some form of financial stress, compared to 28 per cent in the capital cities
- There is no dramatic difference between the major states' financial stress rates. The combined territories have had lower rates of financial stress in recent years.
Disability status:
- Households with at least one person with a disability, or a long term-health condition, have a rate of stress of 44 per cent, compared to households that don't of 30 per cent.
"Such a finding is particularly important as the survey also estimates that a substantial number of households [39 per cent] have at least one person with either a disability or long-term health condition," Dr Phillips says.
"Such households, for example, may have more significant health costs, greater transport costs, special housing requirements. Such households may also have limited earning capacity due to their health or physical condition."
Variation in financial stress for different groups
The paper also details the variation in financial stress that affects different groups in society.
For example, the below graph shows the distribution of probability (or risk) of financial stress for households grouped by their main source of income.
It shows people who rely on JobSeeker payments are at the highest risk of financial stress.
The other group that stands out for a very high rate of financial stress is those households who rely mostly on working age pensions (disability support pensioners, parenting payment single and carer payment).
These households receive a pension payment without the mutual obligations of those on JobSeeker.
They are likely to have additional costs to other households through disability and/or caring responsibilities. The results are very similar to JobSeeker, albeit with slightly lower rates of financial stress.
The next graph shows how financial stress varies by family type.
Single-adult households, in particular, those with children (single parents), typically have much higher rates of stress.
Single-parent households represent close to three-quarters of households in the top 20 per cent of most-stressed households.
Couples, with or without children, tend to have the lowest rates of financial stress (or the highest rates of financial wellbeing).
Overall, Dr Phillips says, his research uncovers "dramatic differences" in rates of financial stress for households who rely on social security payments.
"Of particular concern, is that households who mostly rely on working age social security payments have a much-higher rate of financial stress than other households," he says.
"Age pensioner households have financial stress rates much more in line with the rest of the community.
"Those on the JobSeeker payment are doing very badly, with around 80 per cent in some form of financial stress."
He says a "particularly strong finding" was that households with very low net wealth (less than $2,000) are almost certain to have financial stress.
"This is an important finding highlighting the importance of wealth in determining a household's financial wellbeing and stress," he says.
Claerwen Little, the national director of UnitingCare Australia, said the paper provides new insights into how we are really doing as a society, and how well we are estimating levels of financial stress in Australian households.
"For the first time, we can see clearly that some cohorts are doing it a lot tougher than others, and we have a better picture of who is most vulnerable to financial stress," she said.
"As a wealthy country, we must ensure that no-one lives in poverty, that everyone has a safe home, and that regardless of circumstances, all people can access services when and where they need them."
She said the report provided more evidence that immediate and structural solutions were needed to help the least well-off households, and next week's budget would be a good place to start.
