Dynamics of Financial Disadvantage

Abstract

Research income income poverty. is on below financial Income that disadvantage of poverty a designated is defined in Australia poverty as living line. has in focused a However, household mainly income whose on income poverty. Income poverty is defined as living in a household whose income is bel w th f a esignated p erty line. Ho ev r, n om poverty may provide only a limited understanding of financial disadvantage. Concepts such as subjective poverty, expenditure poverty, deprivation and financial stress are designed to overcome perceived inadequacies in the concept of income poverty. A major point of the submission by the Department of Family and Community Services (DFCS, 2003 :xi) to the Senate (2004:xvii, 18-20) inquiry into poverty was that financial disadvantage was too narrowly defined by income. Deprivation and financial stress are measures of households' financial situation that may complement income poverty (McColl, Pietsch and Gatenby, 2001). Saunders (1996) pointed out that income is at best an imperfect indicator of living standards. Travers and Richardson (1993) argued that financial disadvantage is better measured by several indicators, such as deprivation and financial stress, as well as income. Therefore, there is an implicit assumption that the different indicators are tapping the same underlying concept of poverty or financial disadvantage, but all do so imperfectly. The purpose of this paper is to contribute to the understanding of financial disadvantage by analysing several of its indicators in addition to the commonly used measure, before-housing income poverty. The additional indicators are afterhousing income poverty, subjective poverty and financial stress. The paper examines the extent of financial disadvantage in Australia according to these four indicators, mobility in and out of financial disadvantage, and the interrelationships between indicators. The relationships between the indicators and a range of demographic, sociological and economic factors are also examined. Before-housing Income poverty is defined as living in a household with disposable income, after adjusting for household composition, below a designated poverty line. After-housing measures adjust household disposable income and thus the designated poverty line for housing costs. Subjective poverty is defined as judging one's level of prosperity as 'poor' or 'very poor'. Individuals and households in financial stress are not coping financially; they have difficulty in meeting their financial obligations and may seek financial assistance from others. Income poverty, subjective poverty and financial stress are by no means the only indicators of financial disadvantage. Other indicators include expenditure poverty which, similar to income poverty, is defined as expenditure levels less than a designated level (DFCS, 2003:92; Saunders, 1997; Saunders, 1998); relative deprivation, defined as the 'enforced lack of perceived social necessities