Don’t let cash sit doing little
YOU may not feel particularly well-heeled, but the total wealth of Australians stacks up to a tidy $9.784 trillion.
The trouble is, we do not always make the most of that money.
Chances are, you are better off than you realise. The latest figures from Roy Morgan show Aussie households are worth an average of $1.016 million — or about $475,000 per person.
These figures do not take debt into account, but they are still pretty reassuring.
Not surprisingly, our homes account for about half (50.1 per cent) our wealth, and, despite falling property values, average gross household wealth is still 26 per cent — or $207,000 — higher than it was five years ago.
The remainder of our wealth is held chiefly in super (24 per cent), rental properties (10 per cent) and cash (8 per cent).
Only 5 per cent ($445 billion) is held in direct investments, such as shares, and less than 2 per cent of our wealth ($134 billion) is invested in managed funds.
It is the significant holding of cash that is cause for concern.
Australians are sitting on a total of $738 billion in deposit and transaction accounts. It is our third biggest source of wealth. Yet with interest rates at record lows, stockpiling cash can mean missing out on valuable returns.
Saving money is always a financially healthy thing to do. And it always makes sense to have some emergency savings. However, there are ways to put surplus cash to work earning a better return than with a bank account.
One option is using spare cash to reduce high interest debt. Paying off a credit card charging interest of, say, 19 per cent could see you save more in interest charges than you will earn on separate savings.
Or think about investments such as shares, exchange traded funds or managed funds that have the potential to deliver healthy, tax-friendly returns over the long term. Australian shares have delivered gains of 7.47 per cent over the last 12 months, and about 6.7 per cent annually over the past three years. That’s easily double what you will earn on most term deposits.
To get to know your personal wealth, head to the Net Worth calculator on the MoneySmart website. It can be a useful starting point to know how much you can afford to put towards a personal investment plan. Paul Clitheroe is chairman of InvestSMART, chairman of the Australian Government Financial Literacy Board and commentator for Money Magazine.