A squeeze on spending? An update on household living costs

An update on household living costs for senior Australians

A 2011 National Seniors Productive Ageing Centre (NSPAC) research report into the costs of living found that water, electricity, gas, medical services and rent had all risen at more than double the inflation rate over the previous five years.

This report follows up on that previous report by updating the price increases and examining their impact on the spending patterns of Australia’s 2.9 million senior households.

It focuses on findings for three senior age groups: households aged 75 years and over (75+ households), households aged 65–74 years, and households aged 50–64 years.

Key findings

Prices and household spending

Over the five years to March 2013, the majority of the top ten price rises were for essential household goods or services. The biggest price increase was for electricity, which rose by 83% – more than six times the overall rate of inflation. Other non-discretionary (essential) items, such as water, gas, insurance, medical services, and rates, all rose by more than double the inflation rate. Between 2006 and 2011, Australian households spent a smaller proportion of their income on groceries, alcohol and cigarettes, petrol, clothing and footwear, and car maintenance. Over the same time period, all age groups increased the proportion of their income spent on utilities. The increased proportion spent on utilities reflects the large increase in energy prices.

Senior households

Expenditure by income

Households in the lowest income group (over half a million households that make up the 20% with the lowest income) spent an average of four-fifths of their income on essentials. Some lowest-income households offset increased spending on essentials, such as utilities, by reducing spending on clothing, car maintenance, and groceries. Almost half of these lowest-income households were 75+ households. In 2011, the lowest-income bracket included a higher proportion of older people, a higher proportion of renters, a lower proportion of married people, and a lower proportion of employed people than in 2006.

Expenditure by source of income (employed, self-funded or pensioner)

Between 2006 and 2011, the number of households reliant on the pension grew by 55,000 (6.5%) while those in employment grew by only 35,000 (2.8%). Pensioner households spent, on average, over half (55%) of their income on essentials, compared with one-quarter for employed households.

Expenditure by age

The largest average expenditure for all senior households is groceries ($7,000–10,000 per year). Grocery spending represented 11–19% of disposable income. On average, the proportion of disposable income spent on essentials (groceries, public transport, petrol, communication, health insurance, other insurance, medical, pharmaceutical, utilities and rent) was: almost half (44%) for 75+ households one-third for households aged 65–74 years one-quarter for households aged 50–64 years. Between 2006 and 2011, the percentage of income spent on essentials increased for 75+ households.This group already spent the highest proportion of income on essentials. During the same period, the proportion of income spent on essentials decreased for households aged 50–64 years and households aged 65–74 years.

Changed spending behaviour

To cope with the higher prices for essentials, households have changed their spending patterns. A significant proportion (up to 15%) of households – particularly pensioner households – are no longer spending any money on cigarettes and alcohol, public transport, eating out, clothing, medical fees or on car and home maintenance. Many households also reduced their consumption. For example, a large proportion of pensioner households reduced their real spending (i.e. spending that has been adjusted for inflation) on petrol, clothing and footwear, medical, and car maintenance by more than one-quarter.

Income

Between 2006 and 2011, income grew by 30% for households aged 50–64 years, and by only 19% for 75+ households. For the average 75+ household, private income is only around one-third of private income for the average 50–64 years household. In 2011 average income after tax was $36,200 for 75+ households, $58,300 for households aged 64–74 years, and $93,400 for households aged 50–64 years.

Financial Stress

In 2011, almost a quarter of a million (245,000) senior households said they had been unable to pay their utility (electricity, gas or telephone) bills on time. The proportion of senior households unable to pay utility bills increased slightly from 2006 (from 8.1% to 8.5%). Almost 14% of senior households in the lowest income bracket were unable to pay their utilities bills on time. The proportion of 75+ households that were unable to pay their utility bills grew by 40% between 2006 and 2011 (from 4.6% to 6.5%).

Conclusions

The higher prices for essential household items clearly caused considerable financial stress to many senior households over 2006–2011. Cost-of-living pressure resulted in many seniors going without some types of goods and services and reducing spending on others.

Some trends were worrying: reduced spending on medical expenses could mean some seniors are receiving less health care, and an increase in the proportion of low-income seniors living in rented homes makes them vulnerable to rent increases.

Download the full report below.