New data sheds light on the increasing financial pressures squeezing Australia's middle class out, calling attention to the urgent need for effective financial strategies and support to alleviate economic challenges writes Michael Jeffriess, CEO of LYD.
Firstly, what’s considered middle class? The Australian Institute defines it as a full-time worker with an annual salary of roughly $83,000 in 2024.
Middle-class families are finding it increasingly difficult to balance their budgets. Unsurprisingly, the National Debt Helpline has reported a surge in calls as Aussies try to manage rising interest rates. The Consumer Price Index (CPI) indicates a 3.6% increase in living costs over the past year, driven by higher prices for housing, food, and healthcare.
The latest published wage growth rate averaged 3.75% this past year. However, this number includes top-tier earnings, making it difficult to discern a correct average for the middle class in a category of its own.
With tax heavily biting into earnings above $120,000, there is little incentive to earn more. And if you’re a millionaire, well, nobody cares anymore – this number no longer means financial freedom. Middle class now generally comes with some level of struggle.
Then there’s the upper-class set. True wealth doesn’t show up in cars, homes, and private school fees. Real wealth shows up in assets minus liabilities. A mark of the rich is high net worth plus high disposable income. More than half own their own business. These people have built wealth slowly and strategically. There is no get-rich-quick cheat sheet. Sure, there are a few who have struck luck, but wealth comes down to hard work and time.
Middle class reprieve...for now
Currently, 80% of borrowers are servicing their mortgage ahead of schedule – which means that 20% aren’t. This week's decision by the Reserve Bank of Australia (RBA) to hold interest rates will help the middle class continue to cope with rising interest rates. Had a rate rise been implemented, some no doubt would have been forced to cut back their lifestyles or downsize their homes.
If this happens, we’ll see if the middle class is being squeezed out.
So, if the lower-class set accounts for over half of Aussie workers (defined as an income of less than $66,000) and 10% of households in Australia hold an average net worth of $5.2 million, then there’s not much room left for the middle class.
It’s not all bad news. If the middle class wants to get ahead, they can prioritise comprehensive financial planning, grow their business to its full potential, manage budgets effectively, actively reduce debt, offset their mortgage, expand their network, invest in learning and knowledge, and speak to their advisor or accountant about tax strategies.
About Michael Jeffriess
Michael is a chartered accountant with a broad range of experience in roles such as Chief Financial Officer, OperaFons and Projects ExecuFve, ExecuFve Director, and as an Investment and Compliance CommiXee member across a number of both ASX listed and privately held Groups predominantly within the financial services industry.
Michael had a primary involvement in the lisFng of the HFA Holdings Limited. Michael holds a Bachelor of Commerce & Jurisprudence from Bond University, a Diploma of Financial Services, and is a Graduate Member of the InsFtute of Company Directors.