What caught my eye this week.
Have you ever described yourself as just another average kind of personal finance blog-reading mostly passive occasionally active FIRE-obsessed crypto skeptic?
Well Indeedably did us all a favour this week by collating the data on what Mr Average really looks like:
“Average” varies by locale, so let’s consider the English version, as told by the statistics.
A white 40-year-old man. Married to a white 38-year-old woman. With two school-aged children.
Living in a commuter town somewhere in middle England. Home is a three-bedroom, 720 square foot, house worth £249,000. £96,000 remains outstanding on the mortgage.
Their pensions, investments, savings, cars, and other possessions are worth a combined £133,600.
Giving them a total net worth of £286,600.
Their household annual income was £38,550 before tax, resulting in a disposable income of £29,900.
This means they house, clothe, feed, and entertain the whole family on £81 per day.
It’s invariably interesting to see how one compares to these sorts of statistics.
Unless one is looking at the average age from the wrong side of 45. Then it’s more like an Edvard Munch painting lit by Saturday morning’s PC screen.
Arm wrestling Mr Average
I’d never skip reading Indeedably’s posts in full. Even the bit in this one where he questions:
Pseudonymously written blog posts, whose content is regularly interrupted by confidence undermining random advertisements for haemorrhoid cream, lottery tickets, and Mongolian throat singing lessons?
Ouch! All I can say in our defense is that Internet advertising is mostly personalized to the reader’s own browsing habits…
Ahem. 😉
How much like Mrs or Mr Average are you feeling these days? And do you aspire to retire to a life less ordinary – or something more mundane?
Let us know how Middle of the Road you are in the comments below.
Have a great weekend all!
From Monevator
Best bond funds and bond ETFs – Monevator
Are you childish about money? The origins of our money mindsets – Monevator
From the archive-ator: Too big to scale – Monevator
News
Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1
House prices boom, at least outside of London… – Reuters
…and Nationwide predicts the price growth will continue – Guardian
Long hours are killing 745,000 people a year, global study finds – BBC
UK-listed firms fall to ‘pandemic plundering’ as bosses profit – ThisIsMoney
Leonard Blavatnik named UK’s richest person with £23bn fortune – BBC
San Francisco tech firms sit on record amounts of empty space – CNBC
Crash rules everything around me – A Wealth of Common Sense
Products and services
“Custom indexing unlocks lots of benefits” [Podcast] – Morningstar
Comparing the cost of UK holiday destinations – ThisIsMoney
Natwest to allow personalized bank transfer caps to beat scammers – Which
Sign-up to Freetrade via my link and we can both get a free share worth between £3 and £200 – Freetrade
More Britons pursue a holiday home in Portugal – ThisIsMoney
Houses with outbuildings for sale, in pictures – Guardian
Comment and opinion
Larry Swedroe: the endowment effect – The Evidence-based Investor
Three reasons not to worry about hyperinflation right now – MathBabe
Merryn S-W: are ageing populations really bad for the economy? [Search result] – FT
Good retirement savers are lousy spenders – Leisure Freak
The black box economy – Vox
Lessons from the Great Crypto Crash of May 2021 – The Escape Artist
Profits beat prophets in today’s market – Bloomberg
The spectacular failure of the endowment model – Advisor Perspectives
Twin certainties – Humble Dollar
Naughty corner: Active antics
Fund managers are betting on a boom and inflation – MarketWatch
High-yield spreads are the best single macro indicator – Verdad
Mishits – Enso Finance
S&P 500 CAPE ratio says US market is in an epic bubble – UK Value Investor
A diverse portfolio is a strong portfolio – The Evidence-based Investor
Covid corner
Tests for travel: how to get a green light to go abroad – Guardian
What has gone wrong in Singapore and Taiwan? – BBC
Covid R number inches up across England – Evening Standard
Emptying the nest. Again – New York Times
Kindle book bargains
Lab Rats: Why Modern Work Makes People Miserable by Dan Lyons – £0.99 on Kindle
What It Takes: Lessons in the Pursuit of Excellence by Stephen Schwarzman – £0.99 on Kindle
Hired: Six months undercover in low-wage Britain – £0.99 on Kindle
The Future Is Faster Than You Think by Peter Diamandis and Steven Kotler – £0.99 on Kindle
Environmental factors
Low emission zones do work – Guardian
IEA: no new oil, gas, or coal if we’re to hit net zero by 2050 – DIY Investor
The biggest climate stress test so far – Klement on Investing
“It’s a dirty currency”: Bitcoin’s growing energy problem [Search result] – FT
Climate crisis to put millions of UK homes at risk of subsiding – Guardian
It’s hard to poison a feral pig – Undark
Off our beat
Life satisfaction is better for older people, even when they get sick – Klement on Investing
When all moments have equal value – Raptitude
Daniel Kahneman: “Clearly AI is going to win” – Guardian
All hail King Pokémon! – Input
The optimal amount of hassle – Morgan Housel
The blandness of TikTok’s biggest stars – Vox
Fungi and urban planning – The London Review of Books
And finally…
“In most of our decisions, we are not betting against another person. Rather, we are betting against all the future versions of ourselves that we are not choosing.”
– Annie Duke, Thinking In Bets
Like these links? Subscribe to get them every Friday! Like these links? Note this article includes affiliate links, such as from Amazon and Freetrade. We may be compensated if you pursue these offers – that will not affect the price you pay. Mr Average is welcome to click on anything that catches his eye.
- Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. [↩]
>All I can say in our defense is that Internet advertising is mostly personalized to the reader’s own browsing habits…
Those are the adverts I dislike the most as they are more likely to change my behaviour. I’d much rather see adverts for something I don’t need, like haemorrhoid cream.
Thanks for the shout out, TI.
Dubious browsing habits aside, in my defence I have consumed an unhealthy amount of Personal Finance content over the past few months while putting together Sovereign Quest. Some sites contain more advertising than substance!
Monevator’s far from the worst, at one banner advert for every ~140 words of text, and mostly on topic. With cookies cleared and browsing history emptied, I see ads for e-Toro (twice), Square, an Alternative MBA programme, two blank boxes where adverts have failed to render, and a promotion for a “Feeding America” charity.
No adverts for genital enhancements, get rich quick schemes, mail order brides, or uplifting chemical cure-alls. By comparison with several sites I’ve reviewed lately, that tenuously claimed to be “Personal Finance” related, team Monevator is positively tame!
Without thinking about it very hard, I think those average stats are bogus.
You can’t just say that the average person is white, 40, owns a home worth £250k, has £100k left to pay off, etc, just because those components are average within their own datasets.
For example, the average first time buyer is 30, so our 40 year-old has only had a mortgage for 10 years and so is unlikely to have paid £150k off the debt as well as interest in just 10 years, especially if they earn less than £40k per year.
Also, it’s debatable whether the average 40 year-old even owns a house. Home ownership at 40 is 52% so renting at 40 could soon be average.
So you can either have the average person or the average homeowner, but the average person isn’t the average homeowner. The average homeowner is older and richer than the average person and has paid down far more of their mortgage than the average person, assuming the average person even owns a home.
Sorry for the whinge. Great set of links as usual.
Thanks for the links again @TI,
Average or not, and I take John’s point, each is its own data set, it is fun to read and a picture can be developed from it.
But the article”Fungi and urban planning” must be the best link here, I think I need to buy that book.
JimJim
@ John – well yes, but 10 years ago the house might have cost £150k?
I’m 55, not 40, and white, but not British descent, and married to a South American. And I do have two school age children if anyone’s looking to adopt…
I like the no new oil and gas. Oil is going to be around for long time. There’s too much money at stake. If they think that going green is that easy and more profitable your mistaken. I’ll put my money in oil.
@BeauW It won’t disappear completely but it’s hard to see the big profits continuing to flow as transport shifts to electricity. BP is forecasting demand to fall by 10% by 2030 and 50% by 2040.
Interesting – I’d have had the readers, or maybe those that comment, of this blog as older and therefore wealthier.
The age, family situation, housing and location are there or there abouts for me. Although my earnings and therefore investments and net worth are slightly more. I’d say I fit the description but isn’t that the description of an average blog reader regardless of the topic?
Younger but fairly proportional to that for my age and on track to exceed that net worth by then, smaller family, smaller house, smaller mortgage, could upsize but disinclined to acquiesce, net worth is about 50k lower if you value the DB pension like I do by 25x income, but it gives a quote of equivalent annuity value (which I don’t take seriously) of 49x income, because these be equivalent to linkers.
Looked to investing to give me safety if I lose job because of medical problems, although I think retirement would be decidedly unhealthy for my relationship with wife and my own physical health (excersise, friends, etc). Absence makes the heart grow fonder and living together 24/7 we might get on each others nerves and have nowhere to escape. Might consider setting up an “investment office” I can “commute to” kitted out with xbox and pizzas.
Get asthma at work though, but love the job.
Also investing was a solution for buying house in the first place.
In a world where people don’t share their personal finance details (too much you ‘could’ do this or that) I’ll take those stats.
I think it’s always good to compare 1) if I’m behind then it gives me a jolt to evaluate – maybe I’m doing something wrong? 2) I’m on track – great I can sleep at night knowing I’m at least keeping up with the Jones’s 3) Hooray I am superhuman and ahead of the pack and can sleep well because of all my good choices and be thankful for my blessings.
Who cares if Mr Average doesn’t exists something is better than nothing! I’m a firm believer in don’t tell me show me….. sometimes it’s good just to spell it out.
@Matthew, is it your pension fund that is valuing your DB pension at 49x annual pension payment/equivalent annuity? That does seem high. Would they offer that as a transfer though . I always worked on 20x my own public sector DB, plus a decent PCLS which accrued till they changed the scheme in 2008. Interestingly, HMRC allow for 16x when calculating the annual allowance, which was an issue for me in my final job which came with enough of a pay rise to mean a couple of years where I had to use up all my available allowance from previous years. 16x at least made that just about possible!
I appreciate it’s a poor substitute for all of the angst about drawdown that many commenters here, and American FIRE bloggers in general, grapple with; but I have found reducing my pension value in (my most generous!) net worth calculations after two years being retired is the biggest reminder I am now decumulating rather than accumulating. It’s a bit mortifying (that may not be quite the right word but seems to fit the topic!)
@hudlbuck – yea it’s the fund itself valuing it at that, and sadly doesn’t offer transfers (at the moment) – as it’s unfunded.
Being real I’d say 25x should be a minimum even for a flat annuity because you could fairly expect to live 25 years (infant mortality drags down life expectancy so actually you can expect to live a bit longer)
And being inflation linked – you could expect historically prices to double over 30 years so on average I’d apply 1.5x to that 25x – i.e. 37.5x
(Assuming 3% ish inflation, and it could easily be more/less)
Using 20-25x for a DB pension is clearly too low given current linker yields. Something like 30-50x is much more appropriate.
Pensions represent one of the big issues with valuing wealth. Take the ONS Wealth and Assets Survey and total household wealth is £14-15 trillion. Take the National accounts and it’s £10-11 trillion. Use IHT receipts and extrapolate and it’s only £5 trillion. Odd how when you survey people their wealth is 3x when you want to tax them. Who would have guessed? But DB pensions, property and businesses are genuinely hard to value. The only bit that is easy to value is financial assets and that’s < 15% of UK wealth.
Even the ONS survey looks lowball to me. The top 1% are meant to have average wealth of just over £5mm (with £2mm getting into the top 1%). I'm seriously skeptical of that. Of course all those trusts are not technically part of a household's estate!
The link to Leisure Freak brought something to mind, and if this is a not suitable place to raise the matter please delete the entry.
I have been a member of a county cricket club for almost a decade, the annual membership costs circa £200 though COVID discounts means that the true price should have been higher this year.
Life membership is an option at roughly £3,000. Allowing for the risks of moving abroad again or falling out of love with the game, is buying life membership a no-brainer or should I leave the money in my tracker and pay the annual fee?
The last decade suggests leaving the money where it is, but in twenty or thirty years time lazy days at the cricket with no annual fee could be a real boon.
What are peoples’ thoughts?
@Bill G – what would the non covid annual membership be? Also it might increase with inflation.
3000 at 6.66% = 200 a year, doable in itself if you’re adventurous, although not guaranteed of course
3000/200 = 15 years membership you’d have to enjoy as a minimum, if the price didn’t rise.
Also once that 3000 is spent, it’s gone.
Not an easy choice, you know better how much you need the guarantee of that service and how much you’d use it.
Larry Swedroe’s piece contains a logical fallacy: “The decision to not sell, while not buying more, is not rational.” “Since you wouldn’t buy the wine if you didn’t already own it, the wine represents a poor value to you. ” would be true, but choosing to not buy more when you do own some does not imply that you would not buy any if you owned none.
For assets with intrinsic utility, such as wine, cars, houses there is an optimum amount to own which may be neither zero nor the maximum you can afford, and there is no point in buying more than that optimum, nor in owning less.
For investment assets, there is also an optimum, as set by your allocation strategy, and you would not sell just because the asset has appreciated, nor sell because it has depreciated.
Which is not to say that you should hang on to ‘endowment’ assets if they don’t fit your allocation strategy.
Interesting, I guess its good to know as some sort of measuring stick but as someone who is a 31 year old white male, with one little sprout under 1 and a net worth around triple what it should be in 9 years – I find it much better to compare only to yourself and not others.
Everyone has different goals and when it comes to things such as net worth its impossible to know anyone else’s, the huge house and brand new car can often mean the opposite of what most people assume.
Comparing to others can be a slippery slope, feelings of inadequacy or worse – superiority. Both of those feelings can really slow you down while trying to achieve your financial goals.
While I enjoyed the narrative as always of Indeedably’s post, the readers of financial blogs are not average. It really is a minority sport, so you will get sample bias.
He’s deconstructed well why the average is stuffed. Look around you and you see this experimentally tested in the Laboratory of Real Life.
Most people don’t retire early. Why is that? If you’re average in your middle years, then basically you can’t get there from here. You are hosed.
Mrs Ermine bought me Lab Rats and it’s a great read. The problems that ejected me from the workplace seem to only have become worse and worse.
Intriguing conclusion, though, that Milton Friedman’s doctrine of shareholder primacy destroyed the Western company as a decent place to work. Which caused me to hurl a shedload of money into the stock market to buy out. Now if his changes are actioned, the return on investment on shares will presumably drop, as the interests of other stakeholders are recognised. The world would be a better place, but FI/RE would be a lot harder…
I dare say that Mr Average – 40 years old with two kids – has a different set of average figures than the population as a whole (with more income and less wealth, at a guess). My household composition isn’t too different – lop some years on, add a kid – but our comfortable but far from well off household income is 60% or thereabouts higher and according to the IFS calculator we are pretty much slap bang in the middle of the household income distribution post-composition algorithm. And my impression of the comments on Monevator is that we would be very much lower quartile of the readership.
20 X DB forecast (or alternative calculation) is surely not a great indicator of wealth until you’re in a position to draw it, in the same way we don’t account for a notional state pension. If I was to do that I’d apply a pretty deep discount factor, particularly if my money was in an unfunded scheme – there’s no way England’s entrenched Tory government isn’t making public sector pensioners take a haircut or two over the next couple of generations once it decides to pay down the debt.
Years off*.
Does the old adage I heard maybe 10 years ago of “earn your age and you’ll do alright” still hold as (general) careers advice, as it goes? I’d suspect that £40k a year for Mr Average, primary breadwinner for a family, doesn’t stretch too far in large swathes of south east England unless he has some family wealth to draw on to take a chunk out of housing costs.
@E&G – Tories ideologically wouldn’t want to haircut already accrued public sector pension because that’d be a default and violates the idea of honouring contracts – our society is built upon the concept of contract law. They know people have built plans around what they are promised, the state pension, for example, is probably safe. (They wouldn’t want to means test it for similar reasons, it’d be political suicide for getting the grey vote).
They might thin down future accrual rates, inflation linking, and public sector pay, in the name of cutting costs – bear in mind that even public sector workers are taxpayers and customers, i.e. give a big pay rise to one department that you work for and then suddenly all the ones you don’t work for want a rise too.
Tories know though that wage rises promote meritocracy and reduce the deficit (benefits entitlement reduction and increased tax intake), so they are totally in favour of pay rises in general that are sustainable – they might however be quite long term strategic about that – i.e. limited minimum wage for now to promote business growth to promote faster sustainable organic pay growth in the future (minimum wage rises are always ultimately grounded by sustainability even under labour – hence Blair/brown’s/Clinton/obama’s limited practical ability to deliver as radical changes as voters might desire – Clinton was quoted as being told about how the bond market ruled him).
Looking back on things I reckon my approach was split between making sure the immediate outlook was ok and worrying about outliers. The first was gauged by the current account surplus, savings and pension contributions. Straightforward enough. The second was concerned with paying school fees if I lost my job, then supporting children.
Now I am retired supporting children is still there but now its IHT and the looming dark presence of care home fees.
For care homes, the FT had a chilling article over the weekend ( couldn’t see how to get a link out of the app) and in addition to that an aged neighbour has just died having gone from a very well off middle class existence to relying on the council with a charge on the house. Executor reckons one of the earlier care provider’s took more than £500 k from her savings (net or gross I don’t know).
So idiosyncratics can overwhelm any concept of average and perceptions of financial position are a subject for psychology and what you choose to worry about I suppose.
@Hudlbuck (#12):
Whilst it is still early days, I would imagine that your retirement experience – given your circumstances – is not that unusual in the UK, see e.g. https://www.ifs.org.uk/uploads/publications/bns/BN236.pdf
@Al Cam, I think in some ways it comes down to the issue of how to value a DB pension as part of your wealth. As pointed out above, you can come up with numbers covering a two-fold range at least (official transfer value versus annuity equivalent). And then there is the issue of how to account for its changing value as someone progresses through retirement when you don’t actually know the period over which it will be paid. Or indeed before retirement, how should our numbers allow for the fact that my wife knows she will get a state pension but can’t access it for 10 years.
For ourselves, we don’t try to assign it a number. However our drawdown is modelled on a predictable “floor” of DB pensions which takes us out of the usual SWR debate (i.e. our need for drawdown other than for luxuries has a known longevity).
Slightly changing topic, the problem of valuing pension funds equivalently, and without being subject to moves in bond rates, underlines the absurdity of a Lifetime Allowance for pensions. Limitation of the tax benefits should be based on Annual Allowance. (On the other hand, from a government point of view though unlikely to be popular here, a Lifetime Allowance for contributions to ISAs could make sense).
I looked back to see and 10 years ago, at age 40 I was spookily, uncannily, close to all those key Mr Average figures (net worth, home equity, investments) apart from income. Which was significantly higher.
Why so rubbish then? Because a decade earlier the 30 year old me had a net worth of approx zero – a £10k credit card bill netting out any meagre assets accrued.
I didn’t really start to turn things around until 35 and it took a shift in mindset and leaving the “security” of a perm job to go IT contracting in The City.
So from there it took 5 years just to get my finances to the quoted Mr Average state, and have been trying to catch up ever since with your average (multi?) millionaire Monevator/FIRE blog commenter.
Would like to see the 2021 stats for Mr Average aged 50.
Anyway, apart from that I liked John Kingham’s latest on the S&P500. I am significantly underweight on the USA now, largely due to a dividend/income bias which naturally tends to favour the UK and rest of world.
As John outlines the balance of risk vs reward, combined with a pathetic yield, for the next decade just doesn’t stack up for US index tracking.
Maybe back up the truck if we see a 40% drop.
@Jonathan B:
If you take a looks at the IFS report I linked too, they (rather neatly IMO) side-step the DB valuation issue – and, like you, treat it as an income flow. Thus, the IFS measure of financial wealth excludes DB pensions. Their findings are that, on average, this measure of real financial wealth drops very slowly over retirements in the UK!
IMO, there is little doubt that this is in part due to the presence of DBs – and what happens once DB’s are no longer around and people are really relying on SWR’s, etc remains to be seen!
@Johnathan B – The lifetime allowance for pensions could be seen as pressure upon investors to de/risk – reducing vulnerability of the financial system and providing cheap credit.
Having a lifetime allowance for ISA contributions would drive investors to take more risk, to make the most of their contributions in a wrapper that doesn’t tax growth.
In a sense there is a limit on ISA contributions over one’s life, and if the government wants to taper that they could simply not raise the thresholds, although these ISAs could be seen as bringing money into the country and providing financing our own companies, so government might be disinclined to taper it.
I use the lifetime ISA partly because I regard it as less vulnerable to regulatory tampering than pensions, which could lose their freedoms potentially. Also a lifetime ISA is good if you want to save to buy a retirement bungalow and draw the money down in mostly one hit.
@Matthew, not sure about ISAs bringing money into the UK and financing our companies – as far as I know you have already to be a UK taxpayer to open one, and there is nothing to stop you investing across the world in a S&S ISA.
I agree that ISAs always work better if you envisage lump sum withdrawals, and SIPPs if you intend taking regular annual sums. Nothing to stop someone using both if there is the money to put in them.