Today I’ve got a guest post from my friend Simon Mongey about the composition of households’ wealth. Simon is currently completing his Honours in Economics at the University of Melbourne. He wanted to share some CURF nerdery. He’s managed to put together a couple of interesting charts about Australian households’ assets. Simon writes:
This is why I get a bit excited about the ABS Confidentialised Unit Record Files (CURF); incredibly large sets of microdata on representative sample of the Australian population. Also why I get a bit excited about the economics of housing markets. I’m currently completing an honours thesis that allows me to tend to both of these fancies. ‘Completing’ in the sense that these two figures emerged somewhere out of a miasma of RedBull and cup-a-soup around 4am this morning. Anyway, I thought they may be of some general interest. Both are derived from the 2005-06 CURF: Household Income and Expenditure Survey.
So in the graph below we’re staring across the wealth distribution of Australian households, grouping households within each two percent range of the distribution and mapping out the average composition of household assets for these groups. Studies of wealth (rather than just income) are hard to come by since rich data of household balance sheets such as found in the CURF sets are a fairly recent occurrence. This has annoyed me over much of my time at university, everyone talks about income but no one seems to focus on wealth!
Anyway, here we’ve got a sample of 9,961 households so each data point is taken from the average of 199 household balancesheets (wow!). There’s a lot going on here so I’ll just pick a couple of points. First, for households between the 24th and 88th percentiles of the wealth distribution Residential Property (here taken to mean the value of the place of residence) is by far the prominent asset. Second, for households on the low end of the distribution superannuation is a very important asset and on retirement will provide the primary source of income for these households. Third, we see clear evidence of our love for investor property, outstripping investment in equities, bonds and trusts for most of the distribution. In fact, for those positioned between the 50th and 90th percentiles of wealth a clear ordering of the balance sheet emerges; residential property > superannuation > shares, bonds, trusts (also including bank balances) > own businesses.
Here we look at the same decomposition of household assets but taking averages over the age of the household (proxied by the age of the ‘household head’). This one is a bit more standard so we won’t go on about it. Though its still worth noting that the preference towards investment property over more conventional investments is reinforced, and that upon retirement superannuation is the most quickly eroded form of savings, residential property and stocks, shares and bonds being liquidated more slowly.