Measuring wealth: many Australians are richer than they think. Take the test.
AUSTRALIANS are underestimating how wealthy they are.
Whether it’s measuring up against friends and family or comparing our wealth with overseas, we’re generally a lot better off than we believe.
Financial experts say that many people don’t count all their assets — including their superannuation — when measuring their net worth, and find it easier to focus on negatives such as rising living costs.
Low self-assessments are also caused by people comparing themselves to national averages, which are skewed higher by a handful of ultra-rich people, instead of the more accurate median that measures the middle household or person in a group.
Ipac certified financial planner Patrick Canion said the median was a much more accurate way to measure wealth.
For example, new Australian Bureau of Statistics data shows households’ median net worth — the value of all their assets less all debts — sits at $461,500 nationally, while the average is much higher at $877,800.
Mr Canion said many households did not realise how wealthy they were.
PROPERTY POWER
The ABS data shows that property is the biggest component of household wealth, worth almost 60 per cent of Australians’ total assets.
Social researcher Mark McCrindle said big differences in house prices were accentuating the wealth divide between homeowners, investors and tenants, and also between suburbs.
“People are always comparing themselves to their neighbours,” he said. “In wealthier suburbs people may have an actual net worth higher than the average but their sense is they are not doing well.”
GLOBAL LEADERS
Reports by international investment groups in recent years have ranked Australia at the top of the global wealth tree.
The 2014 Credit Suisse Global Wealth Databook says each Australian adult has median wealth in US dollars of $225,565, well ahead of every nation including Italy ($142,296), France ($140,368), Britain ($130,590), Germany ($54,090), the US ($53,352) and China ($7033).
“We complain about the cost of living but Australia’s wealth, compared to the rest of the world, is phenomenal,” Mr McCrindle said.
Wise Owl Financial adviser Allan Ward said Australians overall were “incredibly blessed” compared with other countries.
“We have won the birth lottery by living in Australia. Wealth-wise, we are way up the tip of the triangle,” he said.
OUR MINDSET
Mr Ward, who has studied behavioural finance, said many people incorrectly believed they were poorer than their peers.
“When it comes to talking about money among friends, people are never 100 per cent open. They talk about the good investments and not the bad ones,” he said.
Mr McCrindle said Australians often forgot that they were gradually getting wealthier. “We have got short-term memories and that’s why we don’t appreciate what we have got,” he said.
However, many peoples’ dreams of a wealthy retirement might need to be revised, he warned.
“People are not downsizing to that pensioner mindset of a generation ago — we forget our parents’ generation and grandparents’ generation and forget what life was like.”
SUPER’S SLICE
The new ABS data shows superannuation is becoming a bigger proportion of household wealth, ranking behind only property. However, many Australians still don’t see super as their own money even though it is.
Peter Ziggy, the CEO of wealth creation firm 3P, said most people had an idea of the value of their property and their debt. “However, many people don’t know where things are at when it comes to their superannuation — their balances, who they’re with, and most importantly what they can do with it,” he said.
Households have an average $177,000 in superannuation savings, but for people aged 55-64 it’s almost $500,000.
Association of Superannuation Funds of Australia CEO Pauline Vamos said rising super balances showed that the nation’s retirement savings system was maturing. “With more people having paid superannuation for their entire working lives, retirement incomes will continue to improve,” she said.
Ms Vamos said many people now knew how much super they had, but were still unsure about how it was invested or its insurance. “Technology has enabled engagement,” she said.
HOW MUCH IS ENOUGH?
Mr Ward said wealth should not be just measured in dollars. “People are inquisitive about where they fit compared to their peers, but it’s the wrong question,” he said.
“The right question is, for the life I want to lead, am I at the right spot? Everybody has such different goals and people are often either overly optimistic or overly pessimistic.”
Mr Canion said how much you might need for a comfortable future and retirement depended on what you lived on now. He said as a guide, a 55-year-old needed 17 times their annual income in savings, a 60-year-old needed 15 times and a 65-year-old needed 13 times.
“That’s far more meaningful than saying you have to have $1 million when you retire.”
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