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Here’s how wealthy you are compared to the ‘average’ person

It’s a trap that many people fall into – thinking they are ‘middle-class’ earners on an ‘average wage’. This is apparently a common belief for those who earn both substantially more than the average household, and substantially less.

So how much money do you really need to be wealthier than the average Australian? Well, that’s a question that the Australian Bureau of Statistics has answered with its recently released Survey of Income and Housing 2017/18, as reported on news.com.au. According to the report, mean household wealth has grown to roughly $1.02 million – up from $749,000 in 2005/06.

If you divide the Australian population into quintiles, the top quintile has an average wealth of $3.2 million, the 2nd quintile has $1.04 million while the middle 20% of households has an average of $564,500. The bottom two quintiles are looking at an average household wealth of $231,100 and $35,200, respectively.

This test is done via a classic ‘balance sheet’ method, with gross assets (houses, shares, superannuation etc.)  subtracted by gross liabilities (mortgages, debts etc.).

The report notes a significant factor in the rise since 2005/06 has been the appreciation of property values (the largest household asset in every quintile), which has more than offset the relatively stagnant rates of wage growth.

If you are wondering how the richest 20% of households hold their wealth, it’s dominated by the family home (34%), superannuation (18%) and investment property (17%), with shares and other financial investments only making up 13% of total wealth.

What does this mean for the ‘average household’?

In my opinion, it shows the importance of being prudent with your money. Keeping a lid on your expenses so you can save up for a house deposit and invest in shares and property is a proven way to get ahead and keep ahead. This report shows the value of effectively using your superannuation to build wealth as well. Super is effectively a tax shelter, so if you do some future planning, make sure your super fund isn’t charging you exorbitant fees and (if you’ve got the funds) making additional contributions and top ups can evidently go a long way in pushing you up those quintiles.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.