Comparing income and wealth in Australia
Financial Planning | 20/07/2021 |
8 min read
How do you measure wealth?
That really depends on who you ask. According to a series of newspaper articles that ran earlier this year, you can consider yourself one of the privileged ‘elite’ if you do the following:
- Buy movie snacks at the cinema kiosk rather than the Aldi
- Splash out on the fancy tinned tuna
- Have multiple streaming services, i.e. Netflix and Stan and Spotify
- Own a bunch of white furniture
While your preferred tuna fish variety is one way to measure wealth. It’s probably not the most accurate, or scientific.
Which is why we’ve taken a closer look at income and wealth in Australia, and how it’s been impacted by almost two years of global pandemic.
How much are you worth?
Australian household wealth hit $12 trillion dollars at the end of 2020. That works out to be approximately $467,000 per household, which is a new record.
If you’re not feeling particularly wealthy as an individual, a study by the Australian Council of Social Services (ACOSS) together with the University of New South Wales (UNSW) may be helpful. It looks at how Australia’s wealth is distributed across different tiers of society, and produced the following table.
Source: ACOSS and UNSW: Inequality in Australia 2020
The study found that the richest 10% of Australians own almost half of all household wealth. There’s a comfortable middle, but there’s also a significant lower tier.
That’s a useful starting point, but it doesn’t provide much context, or account for different ages and circumstances. More importantly, it doesn't show which way the money is flowing.
For research purposes wealth refers to, “the economic resources held by members of a household after all of their debts are theoretically paid off.” It’s consists of the following assets:
• The family home
• Shares and savings
• Other non-financial assets (e.g. cars, furniture, artwork)
• Investment properties
Where things get complicated is when you try to compare these assets across age categories. You don’t need to be a statistician to realise that comparing a 24-year-old in their first job vs a 65-year-old retiree isn’t a like-for-like comparison.
In other words, wealth is a useful tool for measuring high-level trends, but it doesn’t tell us much about people’s day-to-day experience. That’s where income trends come in.
Average incomes in Australia
Wealth provides a snapshot in time. Income can be used to indicate future opportunities.
Regardless of what you earn, the study by ACOSS / UNSW shows that differences in income are lower than differences in wealth.
||Average pre-tax income
Source: SMH: The rich, the comfortable middle and the rest
While those household numbers might look stark, when we get down to individual incomes, the differences tend to be less pronounced. In other words, income is more closely clustered than wealth.
We looked at this more closely back in October of 2020. According to the Australian Bureau of Statistics (ABS), someone aged 21-34 earns an average annual income of $58,000. If you’re 44-54 years that number jumps to $80,000.
Those numbers are heavily dependent on where you live and what industry you work in. Women also earn less than their male counterparts.
Wealth and COVID-19
Australia went into recession in 2020 due to the economic impact of COVID-19. But what’s surprising is that overall household wealth actually increased during this this time. According to the Australian Bureau of Statistics (ABS), household wealth skyrocketed by $501 billion in the last three months of last year.
There are several reasons for this spike, but it was largely driven by surges across three key categories:
- Property prices
- Superannuation returns
- Shares and investment returns
That’s been great news for those who already own property, shares and significant super balances, but it also exposes the growing inequality in Australian society.
If we’re the lucky country, that luck is being unevenly distributed.
Planning for the future
When it comes to long-term financial security, it’s important to remember that wealth is a journey, rather than a fixed sum amount. So regardless of your current income and financial situation there are things you can do to help reach your goals.
That includes looking after your super. Superannuation continues to be one of the primary drivers of Australian wealth. In fact, we have the fourth largest superannuation pool in the world, valued at US$3.1 trillion in March 2021.
That number continues to rise. Our Growth option returned members almost 20% (to 31 May 2021), while our Overseas Shares option returned just shy of 30% during that same period. Taking a more long-term view, we can see that our default MySuper option has delivered members 8.22% p.a over 5 years (to 31 May 2021)
So, are you rich? A better question may be what are your financial goals, and how do you plan to achieve them?
Speaking with a financial planner can help you chart a course for the future. And remember, an initial appointment is available to members at no additional charge.
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