Here is an article from this week's Business Review Weekly (like BusinessWeek magazine). The feature is their annual Rich List, and it has lots of related articles about wealth in Australia. Some very interestng statistics and data in this one. I was shocked at badly off some people are - and comforted at how my household is going relative to others.
Trends: a hard act to follow
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By Ann Harding, Simon Kelly and Lisa Lau
The economic boom of the 1990s has spawned a new and growing group of millionaires. The number of millionaire families in Australia has been doubling every four years since 1986, largely as a result of rising share prices and the housing boom. Today, an estimated 330,000 families have net assets of $1 million or more. About 3.6% of all Australian families are millionaires, up from about 180,000 families in 1998 and about 12,000 in 1983 (families are defined as income units - people living in the same home and sharing costs and income - so the term can cover a sole parent or a couple).
The new rich are creating a boom for many others in the economy, through their spending and investment. The highest-earning 10% of Australians have an income 2.4 times the average, pay 3.5 times the tax and spend twice as much. The tax they pay and the money they spend benefits all Australians. But the wealthy are also creating challenges for government policy makers, as they grapple with the consequences of growing income and wealth inequality.
Millionaires have average family wealth of $1.7 million, compared with average wealth of $200,000 for the rest of the population. The richest 1% of families in Australia have just under $3 million in wealth on average and own 12% of total wealth. The wealthiest 5% own 18% of total wealth. And the richest one-quarter own an estimated 70% of all household wealth in Australia.
The poorest 25% of families each possess about $7400 of assets. The next 25% own an estimated $67,500, and the next 25% have accumulated an estimated $218,000 each. Continuing up the wealth ladder, the top 25% of families own about $720,000 each, while the top 5% of families average just over $1.5 million each in accumulated wealth.
For the wealthiest Australians, the relative significance of their home as a proportion of total wealth drops sharply. The proportion of total wealth held in shares increases; the wealthiest 1% hold 36% of their total wealth in shares. The richest 5% of Australian families hold just under one-third of total wealth in their own home, less than one-fifth in superannuation, and their remaining wealth in other asset forms, such as cash and shares.
The increase in wealth poses challenges in many areas of public policy. The rich are much more likely to opt out of public education, and are more likely to use private health-care facilities. These trends may result in pressure from the rich to push increased funding for these services off the political agenda.
The nest eggs of wealthy older Australians will be looked at with interest by governments in the future. In the 2002 budget, the Howard Government released its first inter-generational report, which indicates that the Government will face sharply increased costs in health care, aged care and income support unless it moves to curb rising costs. Faced with such cost pressures, governments will no doubt look again at whether wealthier older Australians can contribute more to the cost of their health care and aged care.
People under 35 are falling behind in the wealth-generation race. About three-quarters of older Australians (of pension age and above) own their own homes and rode the tide of rising house prices in the past 15 years or so. In contrast, younger people have increasingly struggled to get on to the first rung of the housing ladder. In 1986, 46% of 25-34-year-olds owned or were buying their own home. By 1998, this had fallen to 35%. That decline was one of the key reasons the average wealth of Australian families with a head aged 25 to 34 fell between 1986 and 1998.
A decline in home ownership rates is bad news for governments. One of the key factors that makes surviving on the pension in old age an acceptable option is that most age pensioners own their own home. If sharply rising house prices mean that people aged under 45 find it increasingly difficult to leap the first-home hurdle, governments will face the long-term cost implications. For example, the adequacy of the age pension would need to be re-examined. The age pension provides an adequate lifestyle if a person owns their own home. Paying rent changes the story dramatically.
Inheritance is another unknown element in the wealth debate. Many researchers see a huge inter-generational transfer of wealth, as baby boomers' parents pass on their now valuable houses. But will they leave them to their children, many of whom are now in comfortable middle age, or will they leave the houses to grandchildren who have not managed to buy their first home?
Many baby boomers believe firmly in "spending the kids' inheritance now". They are likely to spend an inheritance on recreation, travel or entertainment. A challenge for governments is to force the boomers to start saving for the many years of old age ahead.
Most of Australia's rich are self-made millionaires who have faced many challenges as they turned ideas into businesses that, in some cases, employ thousands of people. Performing arts companies, charities and sporting organisations often benefit from their energy and wealth. These people may also contribute time, ideas and powerful contacts as well as money.
Millionaires capitalise on opportunities when they arise: that is how they make their money. Start-up companies know this and spend a lot of time persuading the rich to invest money in their ideas. Often, providing venture capital will make the rich investor richer, but the main benefit for the start-up company is that it can start producing, exporting, employing, and expanding. Again, all Australians benefit.
Who exactly are the rich? The typical Australian millionaire is married, lives in Sydney, is aged over 55, has no children living at home, works full-time and has net assets of $1.7 million. The family home accounts for one-third of his or her wealth. Seven of every 10 millionaires live in capital cities, compared with only six of every 10 Australians generally. Sydney is a favored spot: one-third of all Australian millionaires live in Sydney, and 40% live in New South Wales. About 20% of all millionaires live in Melbourne. In every state except Queensland, millionaires tend to live in the capital cities. Only one-third of Queensland's millionaires live in Brisbane.
Forty-five per cent of Australians are aged 45 or older, but 90% of millionaires are aged 45 or older; 18% of Australians are aged 65 and over; 38% of millionaires are aged over 65. On average, millionaires aged over 65 have assets of about $2 million, compared with $1.6 million for millionaires aged 45-64. Four out of every five millionaires are married or living in de facto relationships. Of the 20% who are single, about half are divorced or separated.
Millionaires are more likely to be out of the labor force; 43.5% have quit work. Those still working tend to be employed as managers or administrators, or work as professionals. More than 20% of all millionaires are managers or administrators (compared to 6% among non millionaires), and 17.9% are professionals (compared to 11% among non millionaires).
Millionaires are also more qualified. The proportion with degrees (27%) is slightly more than double the national average; 16% have diplomas compared with 9% for the total population.
The average income of millionaires may seem surprisingly low. Average earnings are about $57,000 a year; another $42,000 a year comes from other sources, such as investments and superannuation. This is only about twice the average income of non millionaires, but the millionaires' wealth is more than eight times that of non millionaires - highlighting the fact that the distribution of income is much more equal than the distribution of wealth.
What types of assets do millionaires own? About 98% own their own home - almost double the Australian average. On average, the home is worth $560,000 and is usually owned outright. Only 14% of millionaires report that they have a mortgage. Millionaires are likely to be landlords: slightly more than one-third own investment properties, whose average value is about $500,000.
More than half of Australia's millionaires hold shares, making them about five times as likely as non millionaires to have ventured personally into the stockmarket. On average, they own an estimated $415,000 in shares, compared with $5500 among non millionaires.
Millionaires are more than twice as likely as non millionaires to have equity in their own business. Almost one-third of them have equity in a business, worth, on average, $330,000.
Millionaires with superannuation have an average nest egg of about $350,000, but 10% have no superannuation. Many have substantial amounts of cash: the average amount estimated to be sitting in interest-bearing deposits is about $230,000, or about 19 times more than the estimated $12,500 of non millionaires.
