ESTIMATING MONTHLY HOUSEHOLD INCOME USING THE NIGERIA LIVING STANDARDS SURVEY
This document explains the derivation of an estimate of monthly household income, using data from the 2018 Nigeria Living Standards Survey (NLSS) published on the Nigeria Housing Data Dashboard.
Expenditure as a proxy for income
Accurately measuring household income is notoriously challenging as survey respondents typically underreport income (see Deaton, 2018:29 for more detail). In our analysis of the NLSS, we used an estimate of household expenditure as a proxy for income - a common approach that is generally seen as more accurate for countries with large informal sectors. Nevertheless, it is worth noting that even this expenditure-based estimate may be understated, particularly in more affluent segments of the market, as some expenditure items are omitted from the survey. Most notably, the survey does not include the purchase of vehicles, a major expenditure category in developed economies, and presumably likewise in more affluent segments of the Nigerian market.
The figure below presents the distribution of households by monthly expenditure as calculated using the NLSS. In the sections that follow, we describe our methodology to calculate monthly household expenditure as a proxy for monthly household income.
Measuring expenditure using the Nigeria Living Standards Survey
The NLSS explores expenditure using the recall method, requiring respondents to report expenditure on various items over a stated time period. These time periods differ depending on the item. In some categories, respondents are asked to recall their expenditure over the previous seven days while in others the survey question refers to monthly or annual frequencies.
The NLSS has specific sections that contain most of the expenditure-related questions (referred to here as the ‘General Expenditure’ sections). However, there are also expenditure-related questions in the Education, Health, Housing and Agriculture sections of the survey.
Our expenditure estimate aggregates data from all these sections and adjusts for different frequencies by standardising expenditure to equivalent 30-day estimates. It then applies household weights to derive a distribution of households by household income. Data for households in Borno state are excluded from all analysis due to incomplete data collection as a result of regional conflict.
Sections of the survey included in the derivation of total monthly household expenditure are explained in more detail below.
General expenditure (Sections 6A, 6B and 7)
These sections of the survey explore food and non-food expenditure at differing frequencies. The included sections are:
- Section 6A: Meals consumed away from home (past 7 days)
- Section 6B: Food consumption expenditure
- Section 7: Non-food expenditure (past 7-days, past 30 days, and past 12 months, depending on the item)
Education (Section 2)
The Education section contains questions on the amount that households spend both directly and indirectly on education. The phrasing of questions in this section depends on the time of year. If the survey is conducted before the commencement of the school year, parents are asked how much the household expects to spend for the upcoming school year. If the survey is conducted during the course of the school year, parents are asked how much the household has spent so far, and how much more the household expects to spend for the remainder of the school year.
Both past education expenditure and expected education expenditure are included in the calculation to derive a total annual education expenditure. The specific variables included in these calculations are listed in the table below. Note that multiple question numbers exist to accommodate for the variability in timeframe explained above.
| Expenditure variables selected from Education section | |
| Question number | Question |
|---|---|
| s02q18a, s02q19a, s02q21a | Tuition school fees (past and expected expenditure) |
| s02q18b, s02q19b, s02q21b | Exam, registration and other official fees (past and expected expenditure) |
| s02q18c, s02q19c, s02q21c | PTA, SMC and other association fees (past and expected expenditure) |
| s02q18d, s02q19d, s02q21d | Contribution to construction maintenance or other school funds (past and expected expenditure) |
| s02q18e, s02q19e, s02q21e | Cash estimates of in-kind contributions (past and expected expenditure) |
| s02q18f, s02q19f, s02q21f | School canteen fees (past and expected expenditure) |
| s02q18g, s02q19g, s02q21g | School boarding fees (past and expected expenditure) |
| s02q18h, s02q19h, s02q21h | Fees for transport organized by the school (past and expected expenditure) |
| s02q18i, s02q19i, s02q21i | Fees for health services (past and expected expenditure) |
| s02q18j, s02q19j, s02q21j | Uniform and other required clothing (past and expected expenditure) |
| s02q18k, s02q19k, s02q21k | Text books (past and expected expenditure) |
| s02q18l, s02q19l, s02q21l | Other required education materials (past and expected expenditure) |
| s02q18m, s02q19m, s02q21m | Private tutoring (past and expected expenditure) |
| s02q18n, s02q19n, s02q21n | Transportation to and from school (past and expected expenditure) |
| s02q18o, s02q19o, s02q21o | School meals purchased outside school (past and expected expenditure) |
| s02q18p, s02q19p, s02q21p | Additional books, computer or learning software to be used at home in support of formal schooling (past and expected expenditure) |
| s02q18q, s02q19q, s02q21q | Music and arts lessons (past and expected expenditure) |
| s02q18r, s02q19r, s02q21r | Gifts (past and expected expenditure) |
| s02q18t, s02q19t, s02q21t | Total educational expenses if individual cannot put in separate categories (past and expected expenditure) |
Health (Section 3)
While the General Expenditure section of the survey includes basic information on healthcare expenditure (expenditure on pharmaceutical products and therapeutic equipment), more detailed questions in the Health section of the survey gather expenditure data on specific healthcare items. Given their more granular detail we have opted to use that data rather than the data from the General Expenditure section of the survey to calculate health expenditure. Specifically, expenditure item code 355 – Health expenditures (excluding insurance and pharmaceutical products) in the General Expenditure section is excluded from the total expenditure estimates to avoid double counting as this expenditure is also captured in the Health section.
Specific items from the Health section of the survey that are included in the analysis are listed in the table below.
| Expenditure variables selected from Health section | |
| Question number | Question |
|---|---|
| s03q14 | How much did the household pay for [NAME]'s first consultation excluding drugs? |
| s03q15 | How much did the household pay for [NAME]'s transportation to and from the first consultation? |
| s03q18 | How much did the household pay for the drug over the counter or kiosks for [NAME] ? |
| s03q21 | How much did the household pay for [NAME] to stay in the hospital or health centre in the last 12 months? |
| s03q30 | In the past 12 months how much did the household spend on additional costs related to [NAME]'s difficulty? |
| s03q33 | How much did the household pay for the bed net that [NAME] slept under yesterday ? |
Housing (Section 14)
The General Expenditure section of the survey includes mortgage expenditure as well as expenditure for repairs and maintenance to the household dwelling and other housing charges. These items are included in addition to the variables in the table below from the Housing section of the survey.
| Expenditure variables selected from Housing section | |
| Question number | Question |
|---|---|
| s14q05a | How much does your household pay to rent this dwelling? |
| s14q05b | Time unit for paid rent |
| s14q04a | If you were to rent this dwelling how much could you charge in rent? |
| s14q04b | Time unit for perceived rent |
| s14q17_1 | How much did you spend on the [FUEL TYPE 1] for this stove in the last month? |
| s14q17_2 | How much did you spend on the [FUEL TYPE 2] for this stove in the last month? |
| s14q39 | During the past 30 days, how much in total did you pay for water, including any fees or costs of transportation, delivery, etc for this water? |
| s14q47a | How much does your household pay for refuse collection? |
| s14q47b | Time unit for refuse collection payment |
Agriculture (Section 18)
The Agriculture section of the survey explores household consumption of crops and livestock. This consumption is included in the expenditure estimate on the premise that consumption of own produce displaces the purchase of such produce.
In the survey, consumption of livestock is reported in terms of an estimated monetary value (Naira over the past 12 months). However, for crops, the household only reports the number of units consumed from its own production. To derive a monetary value for the household’s crop consumption, the number of units consumed must first be converted into kilograms consumed using the conversion variable contained in the data. The price per kilogram for each crop is derived from data provided on the value and amount of the crop sold at the market. These variables are used to derive the value of the household consumption of the crop by multiplying the price per kilogram sold with the kilograms consumed. For households that don’t report selling any of the crops that they consumed, the price per kilogram is based on the average price for that crop across all households who did sell the crop.
| Expenditure variables selected from Agriculture section | |
| Question number | Question |
|---|---|
| s18q03_1 | What are the main crops that members of your household produced during the [YEAR] agricultural season? |
| s18q04a | What was the quantity produced of [MAIN CROP 1] during the [YEAR] agricultural season? |
| s18q04_cvn | Harvest quantity kg conversion factor |
| s18q05 | Did any member of the household consume any of the [MAIN CROP 1] produced by your household during the [YEAR] agricultural season? |
| s18q06 | Of the quantity specified in Q4 of [MAIN CROP 1] produced during the [YEAR] agricultural season, how much of it did your household consume? |
| s18q07 | Did your household sell any of the [MAIN CROP 1] produced during the [YEAR] agricultural season? |
| s18q08 | Of the quantity specified in Q4 of [MAIN CROP 1] produced during the [YEAR] agricultural season, how much of it did your household sell? |
| s18q08a | How much in total did your household earn from the sales of [MAIN CROP 1]? |
| s18q18 | What is the value of livestock consumed by the household in the past 12 months? |
| s18q19 | What is the value of livestock given away, lost or stolen in the past 12 months? |
| s18q25 | What is the value of fish consumed by the household in the past 12 months? |
Expenditure distribution
The density function for the distribution of total monthly household expenditure calculated by summing the various expenditure items listed above is visualised in the graph below. While the expenditure estimates are likely underestimating total expenditure, it is reassuring that the data are log-normally distributed as we would expect from expenditure/income data.
The Nigeria Housing Data Dashboard was developed by 71point4 with support from the Centre for Affordable Housing Finance Africa (itself supported by Agence Française de Développement) and the cooperation of the Nigeria Mortgage Refinance Company.
