Right up front, we declare we’re optimists by nature.
But we’re not naive. We don’t look at the world through rose colored glasses. We do see the problems, we know things could always be better, we know some people do it a lot tougher than others, but we also look for the positives.
We like to think of ourselves as realists. And we’re driven by facts… not political spin, not negative social media rantings or unfounded scaremongering predictions.
Give us the facts anytime. So what are the facts when it comes to the financial well being of average Australians at the start of 2018?
The answer is; pretty good indeed. Despite the profound negativity, and general grumpiness, permeating through the media and social media, the facts are we have a lot to be grateful for. Here are 6 reasons why;
1. We’ve never been richer
The latest household net worth figures show the average Australian is worth about $400,000 which is up $22,000 over the previous year. To put that in some context, according to the Credit Suisse Global Wealth Databook, the average Australian is the second wealthiest in the world behind the Swiss.
We acknowledge it doesn’t feel like it to a lot of Australians because that increase in wealth has come through superannuation returns and a rise in property values at a time when wage gains are very subdued. In other words, we’re asset rich but cash poor.
Our wealth is rising but we don’t get the cash-in-the-pocket benefit until we retire or sell the house… it doesn’t help with the weekly groceries or buying new school shoes for the kids.
Hopefully a continuing strong jobs market will solve this. More on that later.
2. Our superannuation has been performing well
Of the average net wealth of Australians, 21.6 per cent is held in superannuation.
Even though those compulsory contributions are often unseen, superannuation is becoming a big deal for all working Australians… which is why we all need to take a closer interest in its performance and management. So check those statements when they come in and get good advice on whether you’re in the right fund.
Our superannuation funds have also been performing pretty well. Over the last year, the best funds returned around 10-14 per cent which, given the low interest rate and inflation environment, is pretty good. The 3 year and 7 year averages for the better balanced funds is around 10 per cent.
The results last year were certainly helped by a rise of 12.5 per cent in sharemarket returns (prices plus dividends) which was up on the 11.6 per cent return of the previous year. To put that in perspective it was half the return of the US sharemarket performance and ranked 52nd out of 73 global markets followed by the Commsec research group.
So a good sharemarket return but certainly not getting overvalued like other markets.
3. Taxes are low
Shock horror. But that’s the facts. Forget the political spin out of Canberra, the latest figures from the OECD show Australian income tax rates are below the average of other first world industrialised countries and even below that of the US.
Now we acknowledge that there is much debate about the definition of what’s included in assessing income tax rates. Each country has its own unique system. For example, the US has state income taxes while a lot of European countries have extra social security taxes. We don’t have those extra layers but do have the Medicare Levy and compulsory superannuation, which you could argue are a type of social security tax, and the States have payroll tax.
But using thge OECD figures, which are regarded as the global benchmark, we are not overtaxed by comparison to the rest of the world.
4. Job creation is strong… and impressive
Unemployment dropped from 5.8 to 5.4 per cent last year and up until the end of November (the most recent figure) 383,000 new jobs had been created… which is the best jobs growth in 12 years. Yes, the media headlines focussed on the closure and redundancies at “old school” businesses like Holden and traditional retail stores but failed to recognise huge job creation in infrastructure and new age on line businesses.
Digital design group Canva is a classic example of this. Founded less than 10 years ago by Melanie Perkins and Cliff Obrecht, two of our favourite young Aussie entrepreneurs, Canva is now valued at $1 billion, has 250 staff and will double its workforce in the next year.
Job advertisement figures are also currently strong which is a good lead indicator that this boom in jobs will continue and, hopefully, lead to a pickup in wages growth.
5. Our personal debt is better than we think
We’re going to be a bit controversial here because, on the face of it, Australian household debt is one of the highest in the world. It’s these raw figures which make the headlines and scare everyone.
But look at the breakdown and it shows Australians have never been savvier. The cost of money (interest rates) are low and we’re using it to our advantage by borrowing more “good” debt and using less “bad” debt. Borrowing to invest in appreciating assets is regarded as good dent and bad debt is borrowing to consume.
Around 92 per cent of an Australian’s borrowings are good debt and just 8 per cent is bad debt. The average American, by comparison, holds just under 30 per cent in bad debt.
Australians have been using credit cards less and switching to debit cards to manage their bad debt better.
The risk with the good debt, of course, is that the assets behind the borrowing fall in value. With most of this good debt in housing, a fall in home values or a rise in interest rates could have serious consequences.
But, again, looking at the facts Australians have built a buffer and are generally well ahead on their repayments and interest rates look to be stable for some time.
Plus housing affordability isn’t as bad as portrayed by some who crudely just divide, say, a median Sydney house price by the median household income. Pretty naive really because it doesn’t take into account the interest rate on home loans. A 14 per cent home loan rate has as huge impact on affordability as compared with a 4 per cent rate.
Taking into account interest rates, and you find housing affordability is at about the 30 average
6. The economy is improving… and still a miracle
Well into our world record breaking 26th consecutive year of positive economic growth, the Australian economy has been underperforming its 2.7 per cent 10 year average. When the official figures for 2017 are released the average growth will be about 2.5 per cent.
But the economy started to pick up steam in the second half of the year so 2018 is expected to beat the long term average with annual growth of 3-3.5 per cent.
Inflation is under control at 1.8 per cent, we’ve been chalking up record trade surpluses (except for the most recent month which was a surprise), commodity prices are strong (both agriculture and metals), interest rates are low, business and consumer confidence has improved markedly.
Overall, the economy is in good shape.