Few Australians have had a decent wage rise for years, yet they have overtaken the Swiss to become the most wealthy people in the world, according to the latest compilation of global wealth by Credit Suisse.
The Global Wealth Report 2018 calculates the median adult wealth of Australians at US$191,453, compared with US$183,340 for the Swiss and a global average of just US$4,210. Belgians are next with US$163,429 and the Dutch with US$114,935. The Japanese have Asia’s highest median wealth at US$103,861.
In the research an individual’s net worth is assessed from the sum of all assets, including residential property, bank deposits, shares and superannuation holdings, minus any liabilities. Median wealth is regarded as a more accurate guide than average wealth, which can be distorted by a handful of billionaires.
Switzerland has the highest average net worth for adults, at US$530,240, ahead of Australia with US$411,060. But the US has the highest overall household wealth, followed by China and several European nations.
Australia partly owes its ranking to a statistical anomaly: figures on median wealth are skewed toward countries with lower levels of income inequality. At the other end of the scale, North America and Europe have 60% of global wealth, yet they contain only 17% of the adult population.
Asset values in Australia are also inflated by a compulsory superannuation scheme and some of the highest real estate prices in the world, though homebuyers don’t always see the benefits: they gave a bigger share of income to residential property in 2017 than residents of most countries.
According to Credit Suisse, 60% of Australian household wealth is derived from “non-financial” assets, generally property prices, which is unusual. Wages are rising by only about 0.5% a month due to a low inflation rate.
One outcome of the housing boom has been the emergence of a class of “paper millionaires” with relatively few liquid assets. About 1.3 million people in Australia are classed as millionaires in American dollar terms, and by 2023 there are expected to be 1.8 million, eighth in the global list.
Despite the impressive picture of wealth equality, a divide is also apparent between those who own homes and those who rent. A study by research firm Roy Morgan found that the richest 10% of Australians held 48.3% of net wealth in 2017, mostly due to housing and superannuation assets.
In contrast, the poorest 50% of the population controlled 3.7% of private wealth in 2017, down from a 3.9% share 10 years ago. Average household wealth held by the upper tier of Australians last year was US$2.1 million.
But with housing prices now undergoing a correction and banks raising variable home loan rates, a mortgage crisis — and a substantial dent in household wealth — could be just around the corner. Properties bought at the top of the market have lost 15-20% of their value in recent months.
Household debt, mostly accumulated from these same housing loans, is already a smoking volcano for a financial system that could erupt into a full-scale crisis in 2019. Outstanding credit per household amounted to 121.7% of gross domestic product (GDP) at the end of 2017, lagging behind only Switzerland (127.7%).
Total household debt had reached almost 200% of disposable income in January, the most recent data, which is also one of the highest levels in the world. Swiss investment bank UBS has predicted that incomes will remain subdued until 2020, while the debt ratio will rise to about 205%.
An average Australian household is already shelling out 15.5% of combined income to make repayments on loans, second to the Danes’ 16.6% of incomes.
So far mortgage stress has mostly been a problem in mining towns in Western Australia and Queensland that have experienced a surge in job losses due to low global commodity prices.
However, it is expected to spread in 2019 to New South Wales and Victoria, which have the biggest populations. The picture on median incomes could thus look very different next year.