Welcome to Finance and Fury.

I recently was reading an ABC article about the latest earnings reports from the Australian Bureau of Statistics (ABS) – revealing the average income in Australia – now this average is probably a little higher than what most people would expect – but there is a large difference between the average and the median values in a data sample – there is also a difference between these figures and what would be considered to be poor – and there is also a difference between being truly poor

  1. so we will be looking each of these points further – covering the average incomes in Australia against the broader concept of poverty and inequality – but also, how to become truly rich in life

To start things off – looking at the latest earnings report from the ABS – it showed that the average full-time worker makes $1769.80 a week, or $92,029.60 a year (pre-tax)

  1. Once you factor in overtime, penalty rates, bonuses and commission, the average full-time weekly total earnings increase to $95,000 pre-tax (gross earnings)
    1. However – the average weekly earnings for all workers when including those that are not full-time – i.e. casual and part-time workers was $1344.70 – which is approximately $70,000 per annum
  2. Despite the large figure, Australians who work fulltime and make under $92,000 a year are now considered below-average earners
    1. What is an average – Taking all of full time workers incomes and dividing this by the number of workers –
      1. As an example – if you have 5 people, one is earning $40k, another $60k, another $65k, one $95k and the last earning $215k – the average is $95k p.a., even though 3 of these individuals are earning less than the average due to one of these examples earning $215k p.a.
    2. When looking at the Median income – this is simply the middle point in the data set – in the previous example, taking the 5 individuals earning $40k, $60k, $65k, $95k and $215k – the median is $65k
      1. In Australia – the median income is $62,400 – which is lower than the average when including part time income earners
      2. This does show that there is a skew in the average data due to higher income earners
    3. Being considered poor – there is a difference between being considered poor statistically and actually being poor
      1. Firstly – a starting salary is of a 21 yo entering an industry is going to be lower than someone who is in their 60s with 40 years of experience
      2. So if you start earning $30k or $40k at some starting role, does this make you poor/in poverty? As you are $50k below the full time average

To do deeper into this concept – I know poverty is an extremely deep topic to discuss – sensitive topic – Hard to talk about poverty in Australia Very politicised – But it helps to remember that humanity was born into poverty

  1. Go back 800 years (not that long ago in the grand scheme of things) – Vast majority of people were in extreme poverty
  2. Go back 10,000 years – everyone was likely in poverty with how we measure it today – based around income statistics
  3. Even 200 years ago – 1820s – 1.08bn people – 117m not in extreme poverty – 90% are
    1. The measure of extreme poverty is around $2USD p.d.p.p – 1950s: 2.5bn – 1.8bn in extreme poverty – 700m not
    2. 1970 – 3.7bn, 1.5bn not while 2.2bn are in extreme poverty – Today – 7.5bn – 700m in extreme poverty – 6.8bn not – Over past 50 years extreme poverty levels dropped (as percentage of pop) by 85% –
    3. In Australia – the real national disposable income per capita rose from $22k in 1960 to $61k p.a. in 2020 – based around the data from the ABS – so real incomes has increase by close to 3X over the past 60 years
  4. When you hear the term ‘poverty’ in Aus though – There is a large chance that it is referring to those who are below the poverty line – we don’t have extreme poverty – centrelink payments like Age pension – close to $70 per day for single
    1. Australian Relative poverty rate – around 14% of population (after taxes and transfers) – comes close to 26% prior to taxes and transfers
    2. Poverty – measured by taking middle-income and then halving it – 1 – 5: middle point (median) 3
      1. Halve 1.5 – If every quintile was the same income spit then this would be poverty measure
      2. If the median is same as the average number – shows equality in distribution – average of 1-5 = 3, 15/5
    3. What is the line in Australia? – disposable income of less than $445 per week for a single adult as of 2020 – $23,166 p.a. – equivalent of working 21 hours a week at minimum wage
      1. Does this income make you poor? If you are a student working part time earning less – may be considered below the poverty line – but it doesn’t mean that you will always be

This moves onto the next points – We live in a system where you don’t have to be considered poor – as Australia has the elements that have helped to reduce poverty – Looking at the global trend of population and poverty numbers

  1. Dropped from 1.92bn in 1980 to 700m today – from 45% of world pop to 9% respectively
  1. What happened in the 1980s into the 1990s – big things happened from the 80s around the world to help reduce this
    1. China – 1978 Economic Reforms – adopting some free market principles – Property rights
      1. Population size – 1bn in 1980 – 1.1bn in 1990 | PPP – about $1,800 in 1990 to $15,400
    2. India – 1991 Economic Reforms – helping to increase free markets – PPP went from $1,800 to $6,500 between 1990 to 2018
    3. USSR fell – Economic Reforms – Population of 290m saw a massive increase in living standards
    4. Vietnam – 1986 Economic reforms to ‘socialist-oriented market economy’ – stopped being communist – 70m then
      1. PPP – $1500 to $6200
    5. Combined – 2bn people had access to free markets– increased PPP massively – dropped poverty rates
    6. Focusing on employment opportunity and economic freedom is a way to solve poverty from an absolute perspective
  2. Freedom works – just look at economic measures such as GDP per capital and PPP of countries against their freedom index – total 180 countries – start at bottom
    1. Bottom 60 countries by ranking – Only 1 has a greater GDP per capital than $20,000 (guess which oil country this is)
    2. Next 80 countries (40 to 120) – Only 2 have GDP per capital greater than $60k
      1. 5 greater than $40k – 16 more than $20k, 57 below $20k (71%)
    3. Next 20 – 5 below $20k, (25%), 6 between $20k – $40k – almost half above $40k GDP PPP
    4. Top 20 most are above $20k (one not), 4 below $40k – 75% above $40k – 25% more than $60k
    5. The big surprise is that government Expenditure to GDP has no effect on improving any of these metrics – no corrolations

Common theme in these countries in reducing their poverty – The Government stopped trying to do it, and let the people work it out – and decide how much income they needed to live their lives – there was no longer any focus on averages or quotas

  1. Economic exchange should be left to voluntary activity between individuals – people shouldn’t be focusing on statistics
    1. We need private property to be able to do that – History show us that leaving things to free markets rather than government planning or organization, increases prosperity, reduces poverty, increases jobs, and provides good that people want to buy
    2. Having the ability to own things, i.e. your own labour – increases incentive to work more – because you get to keep what you work for – but this doesn’t necessarily mean money – anything you create – from goods or food
  2. But beyond this – How do you become truly rich? – through focusing on value, lifestyle and happiness – could also call this fulfilment – not just solely income –
    1. To get to a point of being truly rich – in your own lives – you need to be living the lifestyle matches your needs –
      1. This isn’t about living a lifestyle that matches what others have – as this can provide short term gratification, but not long-term happiness as the hedonic treadmill catches up to you
    2. You need to get to a point where you are happy in the lifestyle that matches your needs – This is done through looking at your lifestyle costs and coming up with a long-term plan to reduce your expenditures over time
    3. For most people – this will occur naturally – once your mortgage is paid off – this is normally one of the largest expenses that most people face gone – If you no longer need to cover $30k to $60k p.a. in mortgage repayments – the average is approximately $40k p.a. across Australia – then this is a lot of surplus cashflow that is freed up
    4. Also – once the kids are out of the house – you no longer have the same food and education expenses
  3. Generating an income is important – both ongoing whilst you are working, but once you are retired – but the income shouldn’t be the sole focus – your expenditure should also be in focus along with what provides you happiness and fulfilment

Overall – it doesn’t matter what income you earn in the long term, or where you stand in comparison to the average full time workers – but what you need to generate in income to meet your needs and live a life that you are happy with

  1. It matters what your income needs are – obviously, trying to reduce the total level of your expenditure needs can help to reduce down your income needs, but if this comes at the cost of happiness then it may not be the best course
  2. Once our mortgage is paid off – we want to get our expenditure down to $50k p.a.
    1. Have plans in place – it is actually hard to do to reduce expenditure – and reliance on purchasing with other produce – but it is freeing
      1. I know not everyone is in this boat – but we have enough land to feed 10 or more families – but many people, even with a small yard have a small patch to grow on –
      2. If it isn’t your thing than that is completely fine – this comes back to freedom to choose what is best for you
  • What is best for us is to grow our own food – let some of the plants go to seed – and then replant these when the season is right – this creates a never-ending surplus – where shortages and scarcity are no longer a stress
  1. This is not about living frugally – as we will still be able to get everything that we need – but more about become self-reliant – and having an abundance that we can share with friends and neighbours
  1. Also a massive stress relevant – not worrying about the price of tomatoes or lettuce – or shortages
    1. The current shortages show the susceptibility of the global food chain to economic shocks – which we may well see more of in the future – and potentially worse than what is occurring

In summary – Don’t feel disheartened by the averages or any statistical figures

  1. If you can generate the level of income that you need to live the life that you are happy with – this is the first step
  2. Being grateful and appreciating this fact is the next – income isn’t everything – comparing yourself to the average is not helpful –
  3. But then try to mould your lifestyle into something that can become sustainable –
    1. Meet your basic needs first – you could even model this off Maslow’s hierarchy of needs – financially, only he first two rungs of this are due to financials – and that is the basic needs
      1. Physiological needs – being food, water, warmth, rest and shelter
      2. Safety needs – having security, safety and certainty
    2. Once you meet these needs – the rest if up to you
  4. Don’t be concerned about averages – as in the grand scheme of things, this means nothing –

Focus on what you need – how you can produce what you can, where you can – reduce your reliance on your income and focus on prospering long term

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