The average Australian's savings: how do you compare?

The average Australian is putting $427 under their mattress each month, according to a recent survey by Suncorp.

The good news is that Australians are saving more now than at any point since the 1980s. Between the 1970s and early 2000s there was a gradual decline in the rate of saving due to falling interest rates, greater availability of credit and stable economic conditions. By 2003, Australians weren't saving enough for a Freddo frog.

Luckily, the financial crisis whacked some sense back into us without destroying the economy, as happened elsewhere. Since then, there has been a strong resurgence in savings rates with the national average now hovering around 12 per cent of disposable income.

There's been a strong resurgence in savings rates following the global financial crisis. Photo: Karl Hilzinger

But of course that's only half the story. Savings rates differ widely depending on age, wealth and income. Contrary to public perceptions, Suncorp found that youngsters aged 25 to 34 were above average savers, putting away $533 a month.

A 2014 discussion paper by the Reserve Bank went into more detail, and also found that there was a dip in savings for those aged 35 to 45.

That's understandable due to significantly higher living costs around that time as middle-aged households are often paying off a mortgage and have children to support.

However, as the RBA notes, "the behaviour is also consistent with a myopic model of household behaviour. For example, Thaler and Shefrin (1981) argue that hyperbolic discounting can explain why younger households tend not to save enough for retirement, while Carroll and Samwick (1997) argue that younger households place more weight on saving for large purchases and emergencies to smooth near-term consumption rather than saving for longer-term (retirement) consumption".

But how does wealth, or lack of it, affect the savings rate? Well, the richest 20 per cent of households save nearly 15 per cent of their disposable income, double the median.

Interestingly though, the effect of owning a home outright depends on age. For the young, it's associated with higher rates of saving and probably has a lot to do with personality, rather than a pure "wealth effect".

Older households, on the other hand, show a decreased tendency to save if they own their own home. That's probably due to feeling a greater sense of financial security, which reduces the desire to save for emergencies.

The savings gap between rich and poor is even more extreme when separated by income: the top 20 per cent of households save 25 per cent of their income, compared to negative 26 per cent for the lowest income earners.

As the Reserve Bank notes, that's actually somewhat counter-intuitive. "Economic orthodoxy would suggest that a household's permanent or long-run level of income should not affect their saving ratio, since households with relatively high levels of permanent income would also have relatively high levels of consumption. Aggregate time series data on national saving supports this proposition: as countries grow richer, household incomes trend higher but saving ratios do not".

In practice, though, higher income does correlate with a higher rate of saving. They're the stats so you can make your own conclusions about how you compare with others, although that's probably not the best way to judge your accomplishments. Still, knowing where you stand relative to the herd can be empowering.

Of course, whether you should cut out that second morning coffee or take an overdue holiday is up to you.

Graham Witcomb is an analyst with Intelligent Investor. This article contains general investment advice only (under AFSL 282288). Authorised by Alastair Davidson. To unlock Intelligent Investor stock research and buy recommendations, take out a 15-day free membership.