5. Financial stress

5.1 Bivariate relationships
5.2 Effects on financial stress

This section follows the same structure as Section 3 and Section 4. Section 5.1 describes the relationships of financial stress with a variety of demographic, socioeconomic and economic variables. Section 5.2 models financial stress to identify the factors with the strongest effects.

Financial stress is defined by two or more incidences of cash flow problems in a single year. This follows from the ABS analysis of HES, in which moderate stress was defined by two to four cash flow problems (drawn from a slightly larger pool of items). Under this definition, 18.2 per cent of households were in financial stress in Wave 1, 16.1 per cent in Wave 2 and 9.9 per cent in both waves (Table 11).

5.1 Bivariate relationships

There is only a weak relationship between sex and financial stress, with males having slightly lower levels of financial stress. Differences between the sexes for financial stress are much smaller than for income poverty or subjective poverty.

Financial stress is substantially more common among young people. In Wave 1, 44 per cent of 18 to 24 year-olds had experienced two or more cash flow problems. In Wave 2, the comparable figure was 38 per cent. Around 25 per cent of this age cohort was in financial stress in both waves. In each successively older age cohort, financial stress is less common. In the oldest cohort, only 5 per cent had two or more incidences of financial stress in a single year and less than 2 per cent in both years. The relationship between age and financial stress is very different to that between age and income or subjective poverty. The oldest cohort showed the highest incidence of before-housing income poverty and higher than average levels of after-housing income poverty. For subjective poverty, there were no clear age cohort differences.

Financial stress is particularly high in lone-parent households. In Wave 1, 42 per cent of lone-parent households had two or more cash flow problems. In Wave 2, the comparable figure was 34 per cent, and about 25 per cent were in financial stress in both years. Financial stress was lowest (around 10 per cent) among couple households without children and couple households with children older than 15.

Financial stress varies with marital status. It was around 10 per cent among married couples, and substantially higher among those in de facto relationships. It was higher again among the separated and divorced, and particularly high among singles. In the two waves, 34 and 30 per cent of 'singles' were in financial stress. Financial stress was particularly low among widows and widowers.

The incidences of financial stress among non-school completers, school completers and certificate holders are relatively similar. About 20 per cent of these groups had two or more cash flow problems in each year and over 10 per cent in both years. This pattern is similar to that for subjective poverty but is different to that for income poverty, which is much higher among non-school completers than the other groups. Financial stress is lower among those with diplomas, lower again among degree holders and lowest among those with postgraduate qualifications.

Financial stress is highest among the unemployed. In Wave 1, about 45 per cent of the unemployed were in financial stress and in Wave 2, around 50 per cent. This contrasts with about 15 per cent of full-time workers and nearly 20 per cent of part-time workers. Financial stress was low among the group not in the labour force and not marginally attached to the labour force, but substantially higher among the not in the labour force and marginally attached group. Of all groups examined, the unemployed showed the highest incidence of financial stress in both years.

Table 11: Percentage in financial stress (two or more incidences) by demographic and other factors
Characteristic	Wave 1	Wave 2	Waves 1 and 2
All	18.2	16.1	9.9
Sex
Male	17.0	15.1	8.9
Female	19.1	16.8	10.7
Age cohort
18–24	44.2	37.8	26.8
25–34	27.0	24.1	16.6
35–44	21.3	19.5	13.6
45–54	14.7	13.8	7.2
55–65	11.1	9.0	5.5
65–70	7.7	5.4	0.6
>70	5.2	4.6	1.4
Household type
Couple without children	9.9	8.4	3.3
Couple with children <15	16.9	16.0	9.8
Couple with children >15	8.8	9.5	5.8
Lone parent	42.0	34.4	25.6
Single person	20.4	19.3	13.0
Other	31.8	23.0	11.3
Marital status
Legally married	10.1	9.1	4.7
De facto	25.7	25.4	16.8
Separated	36.6	31.2	22.5
Divorced	30.7	24.5	16.4
Widowed	6.6	6.3	3.1
Never married and not de facto	34.2	30.0	20.6
Highest education level
<Year 12	20.3	15.9	10.4
Year 12	22.7	21.5	13.4
Certificate	24.3	19.4	12.9
Advanced certificate	19.3	18.5	11.7
Diploma/advanced diploma	15.6	14.2	8.7
Bachelor degree	13.2	12.3	6.5
Postgraduate qualification	6.2	7.2	2.2
Labour force status
Working full-time	15.3	13.5	7.9
Working part-time	19.8	17.8	10.9
Unemployed, looking for full-time work	45.5	51.4	36.9
Unemployed, looking for part-time work	44.6	49.4	34.8
Not in labour force, marginally attached	37.4	28.5	21.3
Not in labour force, not marginally attached	13.7	12.1	6.9

Table 12 presents the means and medians for the groups in and not in financial stress, which is defined by two or more cash flow problems in a single year.

The cohort analysis in Table 11 showed that financial stress was more common among younger cohorts. This is reflected in the younger mean and median ages of the financial stress groups compared to the comparison groups.

There are no substantial differences in the number of children variable between the financial stress and comparison groups.

The mean occupational status of the financial stress groups is about 8 to 10 score points lower than for the comparison groups. This result is similar to the occupational status differences for subjective poverty, but less than the differences found for income poverty. There is little difference in the effects of parental occupational status, which is consistent with the findings for the other measures of financial disadvantage.

Households with two or more incidences of financial stress have lower mean and median incomes than the comparison groups. However, the income differences for financial stress are lower than for subjective poverty and much lower than for income poverty. For example, in Wave 1, the mean household income of the financial stress group was around $40,000, compared to about $60,000 for the group not in financial stress. The comparable figures for subjective poverty are $30,000 and $60,000, and for after-housing income poverty, $11,000 and $65,000. The same pattern was observed for the other income measures. The equivalised disposable household income in financial stress in Wave 1 was $19,000, compared to $16,000 for the subjective poverty group. These findings indicate that household income has less to do with financial stress than with subjective poverty.

Similarly, household wealth is less strongly associated with financial stress than with subjective poverty. The average wealth of households in financial stress in Wave 1 was about $138,000 and in Wave 2 was $142,000, compared to $100,000 and $107,000 for subjective poverty. However, the wealth of households in financial stress is considerably less than the wealth of households in income poverty; the comparable figures for before-housing poverty are $239,000 and $243,000. Therefore, financial stress is more strongly associated with lower levels of wealth than income poverty, but not to the same degree as subjective poverty.

Households in financial stress have a larger average debt than households in income or subjective poverty. In Wave 1, the mean debt of households in financial stress was $43,800, compared to mean debts of $24,500 and $30,500 for the subjective and income poverty groups. A similar pattern was found for Wave 2. Therefore, households experience incidences of financial stress in part because of loans or other debts.

Households experiencing financial stress tend to have higher incomes and larger debts than households in subjective or income poverty.

Table 12: Characteristics of households in financial stress (two or more incidences) compared to those not in financial stress
Factor	Wave 1				Wave 2				Waves 1 and 2
	Means		Medians		Means		Medians		Means		Medians
	Financial stress	Not in financial stress	Financial stress	Not in financial stress	Financial stress	Not in financial stress	Financial stress	Not in financial stress	Financial stress	Not in financial stress	Financial stress	Not in financial stress
Age	39.2	49.6	37.0	48.0	39.3	49.6	37.0	48.0	37.8	49.6	36.0	48.0
Number of children	1.9	2.0	2.0	2.0	1.7	1.9	2.0	2.0	1.8	2.0	2.0	2.0
Occupational status	36.9	45.2	32.8	39.6	37.6	45.0	34.7	39.9	36.7	44.8	32.2	39.6
Parental occupational status	40.5	41.6	39.5	40.6	40.8	42.2	39.5	40.6	39.8	42.2	37.3	40.6
Personal income ($)	21.9	32.4	17.8	25.1	24.0	34.6	18.9	27.0	22.3	34.0	17.9	26.1
Personal disposable income ($)	18.1	25.0	16.3	21.1	19.5	26.5	17.5	22.3	18.4	26.1	16.9	21.7
Household income ($)	39.6	60.5	32.0	50.5	41.0	62.6	32.0	51.1	36.1	61.4	29.1	50.1
Equivalised household income ($)	32.2	46.7	26.9	40.7	33.0	48.1	27.2	41.3	29.4	47.3	24.5	40.4
Equivalised disposable household income ($)	19.4	27.7	16.7	24.1	20.5	29.1	17.0	25.4	18.7	28.6	15.2	25.0
Equivalised disposable household income after housing costs ($)	14.8	24.0	12.6	20.5	15.6	25.3	13.1	21.8	13.8	24.9	11.6	21.3
Household wealth $ (Wave 2 only )	138.1	489.9	40.8	302.7	142.3	464.8	34.0	275.7	93.5	455.4	16.2	271.7
Household assets $ (Wave 2 only)	180.0	564.8	67.0	370.0	190.2	536.8	59.3	345.7	129.5	526.5	29.5	342.0
Household debt $ (Wave 2 only)	43.8	75.6	9.0	10.0	46.9	72.9	9.1	10.5	38.6	70.9	8.0	10.5

Note: All dollar amounts are in thousands of dollars.

5.2 Effects on financial stress

This section discusses results obtained from logistic regression analyses on two or more incidences of financial stress. The models and procedures are identical to those used for subjective poverty in Section 4. The measures and interpretation of the coefficients are presented in Section 2. The coefficients for Wave 2 are presented in Table 13 and for Wave 1 in Table A15 in Appendix 3.

Table 13: Effects on financial stress (two or more incidences), Wave 2
Variable	Background		+Education		+Marital status		+Work		+Income and wealth
Intercept	-1.87	***	-1.84	***	-1.55	***	-1.68	***	-2.08	***
Male	-0.08		-0.09		-0.04		0.03		0.04
Age	-0.46	***	-0.48	***	-0.49	***	-0.45	***	-0.36	***
Number of siblings	0.06	***	0.05	**	0.04	*	0.03		0.02
Not living with both parents at age 15	0.20		0.21		0.12		0.10		0.09
First language not English	0.07		0.15		0.32	**	0.25	*	0.17
Indigenous	0.75	***	0.71	**	0.45		0.31		0.22
Parental occupational status (10s)	-0.06	***	-0.02		-0.02		-0.01		-0.01
Catholic school	-0.17		-0.08		-0.12		-0.06		-0.04
Independent school	-0.18		-0.07		-0.03		-0.09		-0.05
Postgraduate qualification	-		-0.86	***	-0.77	***	-0.46	*	-0.28
Bachelor degree	-		-0.56	***	-0.53	***	-0.25		-0.14
Diploma	-		-0.17		-0.21		-0.02		0.07
Advanced certificate	-		0.15		0.13		0.15		0.21
Certificate	-		0.11		0.07		-0.04		-0.03
<Year 12	-		0.20		0.15		0.00		-0.03
Married	-		-		-1.25	***	-1.09	***	-0.75	***
De facto	-		-		-0.33	*	-0.27	***	0.01
Separated	-		-		0.11		0.24		0.21
Divorced	-		-		0.13		0.23		0.26
Widowed	-		-		-0.84	***	-0.82	***	-0.74	**
Number of children	-		-		0.19	***	0.17	***	0.15	***
Occupational status (10s)	-		-		-		-0.08	***	-0.03
% time in work (10s)	-		-		-		-0.06	***	-0.02	***
% time unemployed (1s)	-		-		-		0.02	***	0.02	***
Wealth ($100,000)	-		-		-		-		-0.12	***
Equivalised disposable household income ($10,000)	-		-		-		-		-0.03	***
Rescaled R square	0.11		0.12		0.19		0.21		0.26

Note: ***p<0.001, **0.001<p<0.01, *0.01<p<0.05.

The initial model comprising social background variables accounted for more variation in financial stress than it did for income or subjective poverty. The adjusted R square value for Wave 2 was 11 per cent, compared to 3 per cent for subjective poverty and 6 per cent for before-housing income poverty. The greater explanatory power of the model can be attributed to the stronger effect of age on financial stress.

The explanatory power of the model increased marginally (12 per cent in Wave 2 and 15 per cent in Wave 1) with the addition of educational qualifications. The addition of marital status and number of children produced a larger increase to around 19 per cent in Wave 2 and 24 per cent in Wave 1. Occupational status and labour market experiences did not substantially increase the explanatory power of the model. The final model, which included income and wealth, accounted for about 26 per cent of the variation in financial stress in Wave 2 and 30 per cent in Wave 1. The final model was better at predicting financial stress than income or subjective poverty.

There were no statistically significant differences between the sexes in any of the models of financial stress in either wave. This was not the case for the other measures: women were more likely to be in income poverty (until controls were included for labour market experiences) and men were more likely to be in subjective poverty.

Confirming the bivariate analyses, regression analyses showed that age has a much stronger effect on financial stress than it has on income or subjective poverty. In the model, a 10-year increase in age decreases the odds of financial stress by 1.6 times. A 30-year increase in age decreases the odds of financial stress by 3.9 times. The effect for age does not change substantially until wealth and income are added. Even so, the effect is still substantial: a 10-year increase in age decreases the odds of financial stress by 1.4 times and a 30-year difference by 3.0 times. Therefore, younger households are more likely to experience financial stress, even when differences in occupational status, labour market experiences, income and wealth are taken into account.

Similar to income and subjective poverty, the number of siblings tends to be weakly associated with financial stress. Compared to having no sibling, one sibling increases the odds of financial stress by a factor of 1.06, and two siblings by 1.12. The effect was not significant after controlling for occupational status and labour market experiences.

In Wave 2 analyses, 'not living with both parents at age 15' is not associated with financial stress. It just fails to reach statistical significance in the two initial models. In these two models for Wave 1, however, it does have statistically significant effects: 'not living with both parents at age 15' increases the odds of financial stress by 1.2 times.

A non-English speaking background is significantly associated with financial stress only in the third and fourth models after controlling for marital status and number of children. The reason for this is not clear. The same result is found in analysis of the Wave 1 data, which is based on a different group of reference persons.

Indigenous status increased the odds of financial stress by 2.1 times in the initial model in both waves. The magnitudes of the effect for Indigenous status on the three measures of financial disadvantage are very similar. The effects also show a similar pattern; in the initial model the effect was reasonably large with a coefficient of around 0.80, declined slightly with the addition of educational qualifications, declined more substantially with the addition of marital status and children, and was not significant when controlling for occupational status and labour market experiences. These results indicate that financial disadvantage among Indigenous Australians would be reduced if their occupational status and labour market participation were more similar to the occupational status and participation of non-Indigenous Australians.

Parental occupational status is only weakly associated with financial stress. The effect is of a similar magnitude to that found for before-housing income poverty. The type of school attended is not associated with financial stress.

Financial stress is more common among the less educated. A postgraduate qualification reduces the odds of financial stress by 2.3 times and a bachelor degree by 1.8 times. The effects for postgraduate and degree qualifications declined substantially when controlling for labour market variables; neither had significant effects in the final model.

As was the case for income and subjective poverty, marriage strongly reduces the odds of financial stress. Compared to being single, marriage reduces the odds of financial stress by 3.5 times. Its effect is smaller when controlling for occupational status and labour market experiences and further reduced with the addition of wealth and income. However, in the final model, marriage reduces the odds of financial stress by 2.1 times. This is a large effect considering it is net of differences in wealth and income between married and single households. The effect of a de facto relationship on financial stress was much weaker, especially in Wave 2. In contrast, the effect on income poverty was only slightly smaller for de facto relationships than marriage. Therefore, a de facto relationship more strongly reduces the likelihood of income poverty than financial stress.

Widow and widowers are less likely to experience financial stress. Compared to never married and not de facto single status, widowhood reduces the odds of financial stress by 2.3 times. This effect does not decrease with the addition of labour market variables and, in the final model, income and wealth.

Having children substantially increases the odds of financial stress. Each additional child increases the odds of financial stress slightly by about 1.2 times. In Wave 1 the effect is larger, with one additional child increasing the odds of financial stress by 1.3 times. The number of children has a greater effect on financial stress than for income poverty and subjective poverty. This is likely because children involve unanticipated expenses that may lead to financial stress.

Higher occupational status reduces the odds of financial stress. Its effects are of a similar magnitude to its effects on income and subjective poverty, reducing the odds by about 1.1 times for each 10-unit rise in occupational status. Its effect is not significant when controlling for income and wealth.

Time spent working has a weaker effect on financial stress than it does on income poverty. The estimated coefficient is -0.06 for financial stress compared to around -0.15 for income poverty. Therefore, a 10 percentage point increase in time spent working reduces the odds of financial stress by 1.06 times, compared to around 1.2 times for income poverty. The comparable odds ratios for a 50 percentage point difference are 1.3 and 2.1. Therefore, while work experience has a substantial influence on subsequent income poverty, it has a significantly weaker influence on financial stress.

The effect of time spent unemployed on financial stress is similar to its effects on income poverty and subjective poverty. Although the coefficient is of a similar magnitude to that for work experience—the coefficient for a 10 percentage point difference was 0.20—this variable is relevant to only a small proportion of people. About 75 per cent of respondents had no experience of unemployment. Of those who had experienced unemployment, 90 per cent had been unemployed for less than 10 per cent of the time since leaving school and 3 per cent had been unemployed for more than 30 per cent of the time since leaving school. For this small minority, the odds of financial stress are 1.8 times the odds for those who have spent no time unemployed. This effect is similar to that for marriage. Thus, experience of unemployment increases the odds of financial stress, as well as the odds of income and subjective poverty, but a relatively short time spent unemployed does not have strong detrimental consequences.

The effect of wealth on financial stress is stronger than its effect on income poverty but weaker than its effect on subjective poverty. A $100,000 increase in wealth reduces the odds of financial stress by 1.1 times and a $400,000 difference 1.6 times. The effect is weaker than expected, indicating that financial stress is not unknown in wealthy households.

Equivalised disposable household income has a similar effect on financial stress as it does on subjective poverty. The effect is surprisingly small: a $10,000 difference changes the odds by 1.03 times, and a $100,000 difference changes the odds by about 1.3 times. Thus, financial stress is not closely associated with disposable income.

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