Why is the difference between ‘average’ and ‘median’ important?

When talking about money, the terms ‘average’ and ‘median’ get thrown around a lot.

They may seem interchangeable, but the difference is important. Especially when it comes to talking about wages, savings and your superannuation.

It’s easy to get confused between the two, so here’s a quick refresher.

What does ‘average’ mean?

The average of a set of numbers is the sum of the amounts divided by the number of amounts in the set.

For example, the average of the number set 12, 25, 41, 6, 54, and 37 is 29.16. This is because the sum of the amounts in the number set is 175 divided by the number of amounts in the set (six), giving you 29.16.

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It might seem reasonable then, to use the average wage, savings or super account balance figures when reporting on the broader economy. But the average figure can be misleading, showing a rosier picture of the situation than the reality.

Say there are 10 people in a room and nine of them earn $50,000 per year, while one earns $1 million. Collectively, the group earns $1,450,000 and their average salary is $145,000.

You can see how this figure seems greatly inflated compared to the reality of the majority of the group. Large outliers within the group of numbers can skew the result higher than it should be.

What does ‘median’ mean?

For a more accurate picture, it’s better to use the median figure, which is an expression of the middle point in a set of numbers when arranged in ascending or descending order.

If there is an odd amount of numbers, the median value is the number that is in the middle, with the same amount of numbers below and above.

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If there is an even amount of numbers in the list, you need to work out which is the middle pair of numbers, add those together, and divide by two to find the median value.

Using the same figures from the previous example (12, 25, 41, 6, 54, 37), you would first need to rearrange the figures in numerical order (6, 12, 25, 37, 41, 54), then find the middle pair (25 and 37), add them together (62) and then divide by two to get the final median value of 31.

Why is median more accurate?

Politicians, plus bank and super fund CEOs prefer to use average figures rather than median figure most of the time. This is because it allows a small cohort of high wage earners and the very wealthy to make overall figures look better than most people’s lived experiences.

According to the Australian Taxation Office (ATO), the average taxable income for 2019–20 was $63,882, while the median figure was just $48,000.

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Reporting on super funds is also affected by the use of averages. For example, the average super balance in Australia is $162,280 for men and $146,420 for women, according to the Association of Super Funds of Australia (ASFA).

But the median figures are much lower, at $154,453 for men and $122,848 for women.

So, it pays to remember the difference, and recognise when someone may be trying to inflate the figures and make a situation look better than it is.

How does your super balance compare to the median? Are you concerned you may not have enough to retire on? Let us know in the comments section below.

Written by Brad Lockyer

Brad has deep knowledge of retirement income, including Age Pension and other government entitlements, as well as health, money and lifestyle issues facing older Australians. Keen interests in current affairs, politics, sport and entertainment. Digital media professional with more than 10 years experience in the industry.

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