How Average Are You? Net Worth, That Is
If you have read my blogs for a while, you would know I am a big fan of these studies that give a perspective of where the average American stands financially. Now, let me be clear I wouldn’t use this as a financial plan by any stretch of the imagination. These studies don’t mean people are in a good or bad financial situation, plus they include a large contingent that lives below or at the poverty line.
However, why I like these studies is twofold. First, finances are still taboo to talk about. Thus, most people have no sense of where they stand compared to their peers. You see your neighbor who seemingly has the same income as you, driving nicer cars and going on more vacations. Perhaps they are living above their means. Second, it can serve as a motivator if you are below average. No one likes to be below average unless it is your weight, and generally, I like putting these things out there to serve as a litmus test of sorts.
Today’s study was put out recently by the Federal Reserve from 2022 Survey of Consumer Finances which discusses the average net worth of Americans. As a quick review net worth = assets-liabilities. For instance, if you have $800,000 in assets and $200,000 in debts your net worth would equal $600,000. Get it?
Facts and Figures
Let us get into the facts and figures, shall we? The report discusses both the average and mean, along with the median or the middle. There certainly is a huge distinction between the two, but I’ll give you both as a reference point.
At the highest level the average net worth in our country of all its households in 2022 is $1,059,470 while the median is $192,700. If we look at the chart below, we can start to see how this dispersion breaks out.
Here is my commentary on the facts and figures:
- 20s- From ages 20 to 30 you can see the average net worth barely moves at $120,000. My hunch is this is a very skewed age group. Most people in their 20s don’t have a lot of net worth. However, there is a large concentration of individuals who do, many from wealthy parents or grandparents. The better figure for this age group would be median net worth. You can see by the end of your 20s that is only a modest $30,000. With the amount of student loans out there and hyperinflationary environment we are coming from, it does not surprise me that the average 20-year-old hasn’t accumulated much net worth.
- 30s- This age group I found to be the most fascinating. Look at the huge jump from the early 30s to the late 30s in both median and mean net worth. There is a 100% increase in the average net worth and a 60% increase in the median. In my experience, you are seeing people really starting to hit their earning stride by their mid to late 30’s. They are now established in their fields and still have younger (less expensive) children. Thus, you can see this age group starts to really ramp up their savings and are likely to own a home, both of which are contributing to a steep increase of these figures in their 30s.
- 40s- Hello other 40 somethings nice to meet you. I am certainly interested in my fellow 40-year-old averages. What you are seeing here is not a huge growth in their early 40’s, in fact, the median net worth goes down in the early part of this decade while starting to make some headway in those later years. I’d attribute this to children’s expenses creeping up and in the later half of this decade individuals approaching peak earning potential.
- 50s- Alas, we have made it to the average net worth hitting the seven-digit mark by eclipsing the million-dollar barrier. Anecdotally, I’d say if you are in your 50’s it generally is a good time to hit a seven-figure net worth. Your home has some real value, those 401(k)’s should have some benefit of compounding through the years, and likely have additional savings elsewhere.
- 60s- This is the decade where we would anticipate net worth hitting its zenith, and it does for average net worth. Generally, most people are retiring this decade and thus living off their assets rather than continually accumulating assets. The peculiar thing here is the median net worth doesn’t quite top out this decade. I’m not entirely sure of the causation of that, but my humble guess is that enough people are living off of Social Security that it creates a nice little boost for individuals.
- 70 plus- Finally, as one would expect net worth at both the median and mean level start to dip in one’s later years. Medical expenses, giving money away, and simply using one’s funds would be the top three reasons why this would be. Naturally, it would be nice to continue to see your assets grow during these decades, but the reality is we’ve saved for all these years to ideally utilize our assets for a living.
Bonus charts for us all. Now that we know what the average looks like for us Americans what do the top quartiles look like? I think this would be the better litmus test for our clients. Thus, if you are going to compare yourself to any demographic I’d look at the 75th percentile by age. I’ll show the 90th for you high earners and overachievers but pay especially close attention to the 75th percentile chart.
Large data is always a fascinating thing to review for me, guess I chose the right profession ha. I never put too much emphasis on this personally, however, it certainly can help you get a grasp if you are ahead of the game or behind. In any situation, personal finances are a very personal thing. The best litmus test is always how you are doing against yourself. Are you maximizing what you can based on your unique situation? Have you put yourself in a good financial position for both now and in the future? Those are the exact questions you should be reviewing constantly and why we exist as a company. Hope you enjoyed this little lesson and as always stay wealthy, healthy, and happy.