Good financial planning is essential and millions of households are missing out

Monday 18 Aug 2014

The wealth profile of Australian households has changed phenomenally over the past 25 years, according to a recent paper from the Australian Centre for Financial Studies. Thanks to increases in asset prices and the introduction of compulsory superannuation in 1992, most households are much wealthier than those of previous generations. Total household wealth in 2013 reached $6,689 billion, six and a half times the level of household wealth in 1988.

From an aggregate point of view, as RBA data shows below, the net wealth trend line has been positive and increasing with one noticeable blip – the global financial crisis in 2007-08.

 

As of the end of 2013, dwellings comprise more than half the value of household assets (54%); superannuation and life policies account for a further 25%; with consumer durables (such as motor vehicles and household furnishings) at 3%. This provides an interesting contrast with 1988, where again dwellings accounted for around half the value of household assets (51%); superannuation and life policies 17%; and consumer durables 10%.

While the value of assets has gone up, so too has household debt. In 2013, total household liabilities, mostly debt, stand at around half (49%) of the value of household financial assets, or around one-fifth (21%) of total assets. So, for every dollar in debt, households have, on average, about $2 in financial assets and around $5 in total assets.

This compares to the situation in 1988, when total household liabilities stood at around one-third (33%) of the value of household financial assets, or around one-eighth (13%) of total assets. In 1988, for every dollar in debt, households had, on average, about $3 in financial assets and around $8 in total assets.

 

http://www.propertyobserver.com.au/financing/34637-millions-of-households-are-missing-out-on-good-financial-planning.html

- Deborah Ralston