Your Money

Perspective: it feels tough but we’re in good shape

- October 20, 2023 3 MIN READ
Australians among the wealthiest in the world

The economy is slowing, inflation is still too high, it has never been harder to balance the family budget and loan repayments are sky high… but the average Australian is still one of the wealthiest, if not THE wealthiest, people in the world.

I always enjoy reading James Kirby in The Australian newspaper and during the week he reminded us that the annual UBS Global Wealth report showed the median wealth per adult in the US in 2022 was $US107,320. Belgium is the richest in the world at $US249,940; Australia is second with $US247,450.

In the US, the wealth is largely held by the elites, whereas in Australia it is spread much wider.

So why don’t we feel like the richest people in the world? James Kirby makes some interesting points:

Does a $1million home make you a millionaire?

Or does it merely imply that you have an $800,000 mortgage that costs you more than $40,000 a year after tax? A modest house on a modest street can be worth $1m, but it remains the same house on the same street. The cash value means little to you unless you plan on selling up and moving very far away.

Super doesn’t mean a stable retirement income stream

The nation’s superannuation system is good at building retirement income, but poor at helping people secure a stable income stream in retirement. We have the third-highest ratio of retirement assets to GDP in the G20, and of course we have a government aged pension with universal access.

An Australian can expect to retire at 65.5 years, which is later in life than a citizen of the EU, the UK or even the US.

As we are endlessly pressured by Big Super telling us we might not have saved enough for a “comfortable retirement”, one thing is for sure, everyone in the super industry will have a comfortable retirement as the compulsory con­tribution rate (the Superannuation Guarantee Charge) continues to climb.

What we know for a fact is that many middle-income Australians ultimately leave the bulk of their retirement savings to their estate.

We work longer hours

As labour productivity across the economy continues to decline – and artificial intelligence is about to accelerate automation – it turns out we work more hours each week. The Productivity Commission recently reported a surge in the number of hours worked by individual employees across the economy.

Many are in a negative cashflow

Inflation is back with a vengeance and prices for goods and services have lifted dramatically. For a generation that had never witnessed the corrosive effect of inflation on salaries, the change is severe. Already we can see from official statistics that, after health and school fees are taken into consideration, the share of borrowers with negative cashflows has quadrupled to 14 per cent.

Our mortgages are the biggest in the world

We are not just putting a greater share of income into mortgage repayments. At more than 15 per cent, we are actually putting in a greater share than any other advanced economy, the International Monetary Fund revealed this week. We are paying more on the mortgage than anywhere else… nearly 50 per cent higher than in the UK or the US.

Very high price to pay

Putting it all together, we can understand why our special position in the global wealth tables is not to be taken that seriously. On one reading we might have the second-highest median wealth per head in the world – but just now it’s a prize that comes at a very high price.

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