Reason average Aussies are suddenly rich

 

Australia, you just got richer. The median Aussie household has thousands of extra dollars that they may not have noticed.

Let me explain. It's not money you'd expect, and it's not money that will be easy to use. But for some people, it's a bonanza.

Here's why. Our dollar has gone up. You now have way more money! Well, you do so long as you are happy with US dollars.

Say you had $100,000 in total net assets. Back on January 1 2020 you could swap that Australian money for US$70,200. If you do the same now you get $76,200. That's US$6000 more, just for doing nothing!

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The Aussie dollar is on the up and up vs. the US dollar.
The Aussie dollar is on the up and up vs. the US dollar.

Basically all Australians are playing the currency markets, whether we know it or not.

If you have any money at all, you're betting on the Aussie dollar. Our assets are in Aussie dollars so when the Aussie dollar goes up, we get richer in the rest of the world. Yep, you're basically a currency investor, even if you've never thought about it like that.

Of course, if you stay in Australia the whole time, one Aussie dollar always equals one Aussie dollar. Currency fluctuations don't matter too much, especially while we can't leave the country to go on holiday.

But if you're considering moving to another country, then timing it with movements in the currency markets can either make you money or save you money.

Up above, I gave an example of someone with $100,000 who is now $6000 richer in US dollar terms. Having $100,000 sounds nice. But it's actually a small sum by Australian standards. The median Australian has way more than that.

As the next chart shows, median household wealth was over half a million dollars in 2018.

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Median household wealth in Australia is over half a million.
Median household wealth in Australia is over half a million.

So if you had that median sum, this year's currency rise won you US$30,000. You now have over $US380,000.

Back in January you could not afford to buy this charming 3-bedroom, 4-bathroom house just outside Palm Springs California. Now, with the currency appreciation, you can buy it, in cash. Hope you like golf!

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Average Australians can now afford a three-bed house in Palm Springs – in cash. Picture: Zillow.
Average Australians can now afford a three-bed house in Palm Springs – in cash. Picture: Zillow.

Of course not everyone is as rich as each other. Australia has poor people and rich people.

To get in the top 1 per cent of households, you need over $9 million in assets. The top 1 per cent has gained half a million in US dollar terms from the rising currency. They previously couldn't afford this 5-bedroom, 6 bathroom home in Beverley Hills. Now they can.

For most Australians, the biggest single determinant of how much wealth we have is how old we are. We start off with nothing and we rise up. As the next chart shows, wealth peaks right at the end of your working life, in your early sixties.

People in their mid-50s to mid-60s are riding high with over a million dollars in wealth.
People in their mid-50s to mid-60s are riding high with over a million dollars in wealth.

Those people - the ones about to retire - have gained the most from the currency appreciation. They are also the ones with the biggest opportunity to potentially go and spend the money overseas! (The rest of us have to work, unfortunately.) Their Airbnb in Malibu will now work out much cheaper in Aussie dollar terms.

THE BIG PICTURE

Of course, Australia's dollar is still only $US0.76. It has shot up to its highest level since early 2018, but it is not that high in historic terms.

In 2011 the dollar was briefly over US$1.10 and going to America became really cheap. Places that seemed out of reach - New York, Aspen, etc - started to seem as cheap. Or affordable at least

That huge rise in the Australian dollar came after the last economic crisis in the US, when Australia's economy was doing much better than America's. If the pattern repeats, we could see our dollar get a fair bit higher still. If that happens, see you in LA!

Jason Murphy is an economist | @jasemurphy. He is the author of the book Incentivology.

Originally published as Reason average Aussies are suddenly rich



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