What it takes to join the rich “1%” club

Recently there have been protests around the world against the richest “1%”.

The protesters say they are opposed to “the fundamental inequality in society – social, economic, ecological – and want to change the ways that our society is structured and run so that way, the vast majority of people – the 99% – have their interests accounted for, their voices heard, their needs represented”.

As many of these protestors claim our society is run for and by “the 1%”, I found it interesting that recently the Australian Financial Review assessed what it takes to join this exclusive club.

And by the time I finish explaining how to get in the rich 1% club, you may find you’re already in it. But I’m getting ahead of myself…

Apparently it takes assets of $11.2 million to be among the richest 1% of Australia’s 8.4 million households.

The top 1% has a lazy $1.07 million kicking around in cash or it’s equivalent according to the Australian Financial Review. That compares with just less than $120,000 for the top 20% of households.

The average value of cars owned by the top 1% is $84,000; compared with $32,000 for the top 20%. And their financial security is covered by $1.4 million in superannuation, more than double the super held by the wealthiest 20%.

Those who make it in the top 1% of rich people tend to have extensive share portfolios, worth $450,000 and have a business valued at an average price of $3 million.

This is in line with the Merrill Lynch Cap Gemini report of High Net Worth Individuals that found 80% of this club made their wealth through business.

But that doesn’t mean that the wealthiest Australians don’t like property – they do and they are among the keenest property owners in the world.

If you are in one of those 84,000 households that make up the 1%, you are likely to live in a house worth on average $1.9 million and own other property holdings worth over $3 million.

Now clearly there is a wide gap between the top 1% and the average Australian and figures from the Australian Bureau of Statistics show that Australia’s richest households are expanding their wealth three times faster than the poorest groups, and many are using property to leverage their wealth.

Another perspective

No one’s hardship should be belittled. Becoming unemployed or not being able to keep up your mortgage payments aren’t just financial problems. They’re social and emotional problems that strike at your sense of worth.

But things always need to be kept in perspective. Some really interesting numbers emerge when you expand your view and look at the richest 1% in the entire world.

It’s no secret that Australia is among the richest nations on Earth, so how much do you need to earn to be among the top 1% of the world?

According to an article by Morgan Housel in Motley Fool the answer is US$34,000.

This article explains that in his book The Haves and the Have-Nots, World Bank economist Branko Milanovic shares that to be in the top half of the globe, you need to earn just $1,225 a year.

To be included in the top 20% of income earners in the world all you need is a salary of US$5,000 per year. To be the top 10% you would need to earn US $12,000 a year. And to be included in the top 0.1% requires an annual income of US $70,000.

Dig even deeper and the figures become inconceivable.

According to the UN, “Nearly half the world’s population, 2.8 billion people, earn less than $2 a day.” According to the World Bank, 95% of those living in the developing world earn less than $10 a day.

When you consider the context of the entire world, it means that the Australians we consider poor are among some of the world’s richest people.

In short, most of those occupying Wall Street or Melbourne or Sydney would be considered extraordinarily wealthy by much of the world.

Many of those protesting the 1% are, in fact, the 1%.

Anyone can join the 1% club

But the protestors in Australia should remember that we live in the best country in the world. A country of opportunity where virtually anyone can make it into the BRW Rich 200 list. Clearly that’s just not possible in many other parts of the world.

Just look at this year’s Rich 200 List…

While 17% inherited some of their fortune, most were self-made successes, some coming from working class backgrounds.

And there’s no use complaining about the school you went to, because attending a private school and having an elite education is clearly not a prerequisite to joining Australia’s wealthy. While some forged important networks at school, many went to public schools and others didn’t even finish high school. In fact, less than half of those in the Rich 200 list have tertiary qualifications.

And don’t say it’s too late…

You’re never too young and you’re never too old. The youngest member of this year’s BRW Rich 200 is aged 35 and has an estimated wealth of $1.01 billion, which is even more than the oldest member who at the age of 92 has accumulated $289 million.

Some final thoughts.

Just to make things clear… before I receive a flood of negative comments – this blog isn’t to belittle the protestors’ message. I see merits in some of the Occupy protestors’ arguments.

And I’m definitely not against protesting – I grew up in the age of protests against the Vietnam War.

Needless to say I can understand why people would be upset when many of top 1% are perceived to have earned their income unjustifiably. Being paid by big corporations that in some cases have been run into the ground and then been bailed out by their governments doesn’t sound right.

Nor does a tax system where the wealthy seem to avoid tax and the poor seem to pay a disproportionate amount.

It’s hard to argue with that logic.

Remember… I’m not having a go at the protestors. I’m just offering another perspective and reminding them that even though our system has lots of faults, it has created more prosperity, even for the lowest 1%, than most of the world can comprehend.

Michael Yardney is the director of Metropole Property Investment Strategists , a best-selling author and one of Australia’s leading experts in wealth creation through property. He also writes the Property Investment Update blog.