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A Tale of Two Surveys: Household Debt and Financial Constraints in Australia


  • Gianni La Cava

    (Reserve Bank of Australia)

  • John Simon

    (Reserve Bank of Australia)


Over the past decade, household debt (as a share of household income) has reached historically high levels. This has raised concerns about whether, as a result of the rise in debt, households are now more financially ‘fragile’. Using data from the 1998/99 Household Expenditure Survey (HES), a logit model is constructed to examine the relationship between the probability of being financially constrained and the economic and demographic characteristics of households in Australia. We find that the probability of a household being constrained is significantly affected by demographic and economic variables such as age, marital status, home ownership, weekly household income, the proportion of income earned from interest, and the share of income going to repayments on mortgage debt. Unfortunately, however, we cannot separately identify households with investor housing debt and so cannot examine the relationship between this component of household debt and the probability of being financially constrained. We also apply the model to data from the 1993/94 HES and the 2001 Household, Income and Labour Dynamics in Australia (HILDA) Survey. Our results imply that the overall proportion of households who are financially constrained in the economy has fallen or, at worst, remained unchanged between 1994 and 2001. Separating households into financially constrained and unconstrained groups, we find that much of the rise in debt appears to have been due to unconstrained households taking on more debt. As such, the rise in the aggregate debt to income ratio associated with owner-occupier mortgages appears to be the result of voluntary household choice rather than a result of increased household financial distress. Hence, the increase in owner-occupier mortgage debt has not been associated with an increase in the proportion of households who are financially constrained.

Suggested Citation

  • Gianni La Cava & John Simon, 2003. "A Tale of Two Surveys: Household Debt and Financial Constraints in Australia," RBA Research Discussion Papers rdp2003-08, Reserve Bank of Australia.
  • Handle: RePEc:rba:rbardp:rdp2003-08

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    References listed on IDEAS

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    Cited by:

    1. Robert Breunig & Deborah A. Cobb-Clark & Xiaodong Gong & Daniella Venn, 2005. "Disagreement in Partners’ Reports of Financial Difficulty," ANU Working Papers in Economics and Econometrics 2005-453, Australian National University, College of Business and Economics, School of Economics.
    2. LAURA BERGER-THOMSON & ELAINE CHUNG & REBECCA McKIBBIN, 2010. "Estimating Marginal Propensities to Consume in Australia Using Micro Data," The Economic Record, The Economic Society of Australia, vol. 86(s1), pages 49-60, September.
    3. Ellis Connolly, 2007. "The Effect of the Australian Superannuation Guarantee on Household Saving Behaviour," RBA Research Discussion Papers rdp2007-08, Reserve Bank of Australia.
    4. Herrala, Risto & Kauko, Karlo, 2007. "Household loan loss risk in Finland : estimations and simulations with micro data," Research Discussion Papers 5/2007, Bank of Finland.
    5. repec:bth:wpaper:2004-01 is not listed on IDEAS
    6. Ellis Connolly & Fiona Fleming & Jarkko Jääskelä, 2012. "Households' Interest-bearing Assets," RBA Bulletin, Reserve Bank of Australia, pages 23-32, December.
    7. Robert Breunig & Deborah Cobb-Clark & Xiaodong Gong & Danielle Venn, 2007. "Disagreement in Australian partners’ reports of financial difficulty," Review of Economics of the Household, Springer, vol. 5(1), pages 59-82, March.
    8. Katherine Henderson & Grant M. Scobie, 2009. "Household Debt in New Zealand," Treasury Working Paper Series 09/03, New Zealand Treasury.
    9. Yunhee Chang & Ki Lee, 2006. "Household Debt and Marital Instability: Evidence from the Korean Labor and Income Panel Study," Journal of Family and Economic Issues, Springer, vol. 27(4), pages 675-691, December.

    More about this item


    household debt; household surveys; households; liquidity constraints; HILDA; HES;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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