3  The Survey of Family, Income and Employment

The data for this study comes from the Survey of Family, Income and Employment (SoFIE) conducted by Statistics New Zealand. SoFIE is a national longitudinal survey that commenced in 2002 and will continue until 2010.[2] The target population for SoFIE is the usually resident population of New Zealand, aged 15 years and older, who are living in private dwellings.

Approximately 11,500 households agreed to be interviewed, with data collected from 22,000 individuals aged 15 and over. All individuals who were interviewed in Wave 1 are Original Sample Members (OSMs). Their children under the age of 15 will be interviewed in subsequent waves once they have had their 15th birthday and will also be considered OSMs. Each year all OSMs and anyone else, aged over 15, living with them are interviewed.

Each wave of SoFIE asks about family and personal characteristics, income, education and labour force participation. Waves 2, 4, 6 and 8 contain a module of detailed wealth questions. Waves 3, 5 and 7 contain a module of detailed health questions[3]. This study was undertaken between the releases of Waves 3 and 4.

3.1  Population of Interest

The population of interest for this study is restricted by data availability. This population is represented by OSMs aged 17 and over in Wave 3 who answered Waves 1, 2 and 3. This sample represents 2.88 million individuals.

Statistics New Zealand provided longitudinal weights for the OSMs that adjusted for non-response and ensured that the SoFIE data matched estimates for age, sex and ethnicity of the New Zealand population as at October 2002. Longitudinal sample weights continue to be assigned for all OSMs, including those who do not respond in subsequent waves.

Although SoFIE was designed to be a random sample of the target population, non-response, subsequent attrition and non-response to particular questions have reduced its representativeness. The response rate for the first wave of SoFIE was 77% while 80% of the OSMs remained in the sample at Wave 3. A small number who responded to SoFIE did not respond to the detailed health and/or wealth modules. Because these respondents were assigned weights, they contribute to estimates of population totals. As a result, the population represented by the sample used in the analysis is reduced by the number of individuals represented by these respondents. However, the use of weights is not guaranteed to eliminate non-response bias. The base sample for the regressions reported in this paper consists of 17,043 respondents, representative of 2.78 million individuals.[4] For the remainder of the analysis, this population will be referred to as the “longitudinal population”.

In order for non-response (owing to initial non-response, attrition and non-response to specific questions) to not bias the estimates of the relationship between health and wealth, it would need to be random with respect to health and wealth. However it is not possible to test this assumption with the available data. Ideally, results from this analysis will be representative of New Zealanders who were within the target population of the survey in 2002, and were still in the target population for Wave 3.

3.2  Measures of wealth

In Wave 2, respondents are asked to provide the values of their assets and liabilities. This includes property, mortgages, superannuation (other than New Zealand Superannuation), life insurance, trust funds, financial funds, bank assets, bank liabilities, personal loans, student loans, durables, cash, business value, hire-purchase, credit card and overdraft debt. Two non-specific categories were provided for miscellaneous assets and liabilities. These were aggregated into total assets and total liabilities, with net wealth defined as the difference.

Henderson and Scobie (2009) noted that the SoFIE data underestimates the levels of assets and liabilities when compared to data from the Reserve Bank of New Zealand. While there are elements that differ between the two, these are unlikely to explain the difference. SoFIE was not compared to the Reserve Bank of New Zealand data during the course of this study.

3.2.1  Net wealth

We consider net wealth, the dependent variable, as a function of health variables and control variables. Table 1 gives percentiles for net wealth. While net wealth has a wide range, a significant proportion of total wealth is held by the wealthiest individuals. The range between the 95th and 99.9th percentiles is of greater magnitude than that between the 5th and 95th percentiles.[5]

Source: SoFIE Waves 1–3, OSMs, longitudinal weights, supplied by Statistics New Zealand

Taking natural logarithms of net wealth scaled down the large positive outliers. This produced a bell shaped curve with similar sized tails on both sides of the distribution. Regression models using the logarithm of net wealth as the dependent variable gave a significant improvement in goodness-of-fit relative to using actual net wealth.

Under New Zealand Superannuation (NZS), New Zealand citizens and permanent residents receive superannuation payments from the Government if they are aged 65 years or older until the time of their death. The expected future cash flows from NZS represent a significant asset to the majority of the population.[6] The present value of future NZS payments was not included in the measure of total assets for this study. As the value to an individual depends on life expectancy, its inclusion would have necessitated allowing for the effect of an individual's health status on life expectancy. This was not attempted.

The term “wealth” in this paper refers to net wealth (assets less liabilities). So individuals with high levels of total assets, who appear to be “wealthy”, but who have high levels of total liabilities are not necessarily considered wealthy for the purposes of this report.

3.2.2  Student loans and negative net wealth

Approximately 6.5% of the longitudinal population were estimated to have total liabilities in excess of their total assets. Liabilities are often insured against a corresponding asset of equal or greater value. However, our measures of assets and liabilities consider only tangible assets and liabilities.

Many tertiary students receive student loans to fund their education. A student loan enables a person to borrow against their future earnings. Economic theory suggests that education increases a student's human capital and, because of this, their future earnings. Following the work of Henderson and Scobie (2009), the liability of a student loan was exactly offset by the conservative assumption that there would a human capital asset of at least equal value.

Table 2 summarises the percentage of the longitudinal population with negative net wealth. Only 2.5% of the longitudinal population were still estimated to have negative net wealth after the inclusion of an offsetting human capital asset.

Source: SoFIE Waves 1–3, OSMs, longitudinal weights, supplied by Statistics New Zealand

The assumption that investment in education creates an asset of equal value to student loans is in fact extremely conservative. In general, an individual undertaking study would expect the present value of their future earnings to increase by more than the cost of their study. Furthermore, although every individual in the population will possess human capital of some measure, we only include a human capital asset for those individuals with student loans.

When decomposing net wealth into assets and liabilities the human capital asset was included as a negative liability rather than as an asset. So human capital is not included in total assets but instead offsets student loans in the measure of total liabilities.