Household Debt and the Gap Between Income and Expenditure in Israel
Author: Kyrill Shraberman Policy Research

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Executive Summary

This study analyzes the gap between Israeli household income and expenditure, and examines this gap alongside characteristics such as socioeconomic status, age, marital status, and expenditure on housing. The data show that expenditure on housing is the most significant factor in determining the gap between income and expenditure among those who are unmarried, and socioeconomic status is the most significant factor among married couples. The study also finds that there has been a rapid increase in the total liabilities of households in recent years, though an international comparison shows that the situation in Israel is relatively good.

A negative gap

A negative current gap – when expenditure is greater than income – is liable to increase a household’s risk of economic difficulties. In Israel, the share of households with a negative gap in the Jewish population stands at about one third of all those aged 25-60: 35% of households among married couples and 39% among unmarried persons (as of 2015).

Housing expenditures

One of the most significant household expenditures is the expenditure on housing (rent or mortgage). The study finds that when households are classified according to the type of their expenditure on housing: rent, mortgage payments, rent and mortgage payments, or no housing expense, households that pay both rent and mortgage payments, have a higher negative gap than those who pay only rent, only mortgages, or neither.

What influences the size of the negative gap? Married and unmarried households

Among unmarried persons, the combined expenditure on mortgages and rent is the most influential factor in determining the size of the negative gap: this expenditure increased the per capita negative gap by 156% relative to households without housing expenditures (when other characteristics are held constant).

In contrast, among households of married couples, socioeconomic class is the most influential factor in determining the size of the negative gap. Having a lower socioeconomic standing (belonging to the bottom income quintile) increases the negative gap by 23% relative to households with a high socioeconomic status (belonging to the top quintile).

In terms of the effect that consumption categories have on the size of the negative gap, the study finds that expenditures on “personal expenses” – including clothing and footwear, laundry services, haircuts, and cosmetics – increases the negative current gap at the highest rate both among those who are married (7.2%) and those who are unmarried (4.6%).

Household indebtedness

In addition to the above analyses on household income and expenditure, the study includes an analysis that classifies liable households by the entity to which they owe money: (1) banks (2) commercial bodies, and (3) family and friends. Most households in debt (93%) owe money to banks, 46%-51% owe money to friends and family, and between 21% and 37% owe money to commercial entities.

An analysis by age group found that total average debt (to all three types of entities) increased with age: the average debt in the 25-29 age group was NIS 150,000, compared to NIS 315,000 in the 50-60 age group.

Comparing total debt by socioeconomic status (income quintiles) shows that there is no significant gap between the quintiles in the amount of debt owed, but there are gaps in the distribution of the entities to which households are indebted.

While the top income quintile owed the highest amount to banks (approximately NIS 174,000), the bottom quintile owed the highest amount to family and friends (approximately NIS 110,000). These data show that, due to the low income of households in the lowest quintile, banks do not grant them high credit ratings, but they manage to raise funds from friends and family.


An international comparison

An analysis of total liabilities taken by households in Israel shows that since 2007 there has been an increase in the growth rate of liabilities. An international comparison shows that the leverage (the ratio of total liability to GDP) of households in Israel is very low compared to other developed countries: the share of liability stands at 41% of GDP in Israel, compared with an average of 66% of GDP in the OECD.