Household Debt and Financial Constraints in Australia

21 Pages Posted: 23 Mar 2005

See all articles by John A. Simon

John A. Simon

Reserve Bank of Australia - Economic Research

Gianni La Cava

Reserve Bank of Australia

Abstract

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 household survey data, 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, home ownership, weekly household income, and the share of income going to repayments on mortgage debt.

Comparing survey results across time, it appears that the overall proportion of households that are financially constrained has fallen or, at worst, remained unchanged between 1994 and 2001. 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 and not to be associated with an increase in household financial distress.

Suggested Citation

Simon, John A. and La Cava, Gianni, Household Debt and Financial Constraints in Australia. Available at SSRN: https://ssrn.com/abstract=688131

John A. Simon (Contact Author)

Reserve Bank of Australia - Economic Research ( email )

GPO Box 3947
Sydney, NSW 2001
Australia

Gianni La Cava

Reserve Bank of Australia ( email )

GPO Box 3947
Sydney, 2000
Australia

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