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Average Net Worth of an American Family
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Do you know what the average net worth is in the United States?
Every three years the Federal Reserve Board does a survey of consumer finances, which looks at a wealth of financial information, including income and net worth. They even have statistics of the percentage of people who use the Internet to find financial data broken down by the age of the head of household (did you know that in 2007, 16.5% of families with the head of household above 75 years of age used the internet?)
Well, that’s where I turned to find out the average net worth of an American family.
FRB Net Worth Data
The Federal Reserve Board slices and dices the net worth data better than the CNN Net Worth calculator, which I’ll talk about next. They discuss it as a value of income and age (of the head of household), but they also do it based on family structure, education of the head, race, work status of head, occupation of head, region, urbanicity, housing status, etc.
Across all groups, the 2007 median net worth was $120,300 and the mean was $556,300 (guys like Bill Gates and Warren Buffett really mess things up).
Here are a few of the more interesting ones (2007 median data, 2007 dollars):
Current work status of head:
- Working for someone else: $350,100
- Self-employed: $1,961,300
- Retired: $543,100
- Other not working: $124,100
Race or ethnicity of respondent:
- White non-Hispanic: $692,200
- Nonwhite or Hispanic: $228,500
Housing status:
- Owner: $778,200
- Renter or other: $70,600
How can you use this? It’s important to remember that you can’t make broad conclusions based on this data. Owning a home can help you get a higher net worth, but it doesn’t guarantee one. On the flip side, renting doesn’t mean you’ll always have a lower net worth. The same is true for your race or ethnicity and your work status (though I would imagine “other not working” will likely have an impact in improving your net worth).
The FRB has packaged up their data into a nice 56-page document called Changes in U.S. Family Finances from 2004 to 2007: Evidence from the Survey of Consumer Finances. (25.2% of people without checking accounts gave this reason for not having one: “Do not like dealing with banks.”)
CNN Net Worth Calculator (Age, Income)
The easiest way to see how you stack up is by using CNN Money’s Net Worth calculator. I don’t know how fresh the data is, they only cite Nielsen Claritas as their source (with no date), but it’s good enough for our entertainment purposes. They offer two median net worth charts, one based on your income and one based on your age (the two charts are independent).
Age:
- < 25: $1,475
- 25 – 34: $8,525
- 35 – 44: $51,575
- 45 – 54: $98,350
- 55 – 64: $180,125
- 65+: $232,000
Income:
- < $25K: $1,250
- $25K – $49K: $34,375
- $50K – $74K: $168,500
- $75K – $99K: $301,475
- $100K – $124K: $301,475
- $125K – $149K: $644,100
- $150K+: $1,122,900
How can you use this? It’s tough, which is why I don’t spend too much time with these things. It’s good to know where you stand based on your age and income but it doesn’t give you a good path forward. It would be more useful to know how the net worth was distributed between the different asset classes. For example, if you’re 45 with $125,000 of income, where are your assets? Do you have a home in which you have $100,000 in equity and a stock/retirement portfolio with another $250,000? Are you the $644,100 net worth person (based on income) or the $98,350 (based on age), and where is that net worth?
This is like knowing your credit score relative to the national average of credit scores, without a path forward the information is useful only for entertainment.
Average Net Worth Dropped 23%
Did you know that between the fall in the stock market and the housing market, the average American net worth fell 23% in the last year? It was reported in February in an AP story published on CBS News and while there has been a bit of a market recovery, it’s stunning to think a quarter of all assets held by Americans were wiped off the accounting books. The median net worth fell 17.8%.
How can you use this? Knowing the average went down 23% can really help you psychologically. If you saw your net worth fall by 10%, knowing nothing else, you’d probably be devastated (I know I would). It’s like seeing your retirement account fall 40% last year, it’s very painful. However, knowing that your net worth fell 10% when the rest of America, on average, fell 23%, means you’re better off than most. It means while you may have lost some, you dodged the bullet somewhat because you didn’t fall as much as the average.
Average Net Worth of Congress
A study by the nonpartisan Center for Responsive Politics revealed that the median net worth of the incoming members of Congress is about $1.8 million, compared to the median net worth of the re-elected incumbents, which was $815,000. An executive director then says Congress “remains short on lawmakers who can personally relate to what the average American is going through financially,” which I think is an unreasonable statement when you consider $815,000 – $1.8M is not a ridiculous sum for someone who has worked as a professional and been prudent with their money for thirty or forty years. I’m not saying they’re pinching pennies or in the poorhouse, but to say they can’t personally relate is a bit inflammatory.
I’m always hesitant to put too much stock in “average” or “median” values for anything (I think net worth by age is meaningless), whether it’s net worth or average credit scores, but it’s always good to know where you stand relative to everyone else.
So, how do you stack up? 
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I have a substantially higher net worth for my age. However I think net worth is somewhat misleading of a number.
For instance, while a house can increase your net worth, it can also potentially be the cause of financial ruin if your debt to income ratio is high and you lose your job.
While net worth is an indicator of your financial health, it shouldn’t be the sole indicator.
Agreed.
About the difference between homeowners and renters – what do you think the social differences are? I strongly believe not everyone is cut out to own a home. Homes carry a huge amount of responsibility that not everyone seems to want.
I have never wanted to be a median so much in my life.
I think that many people will agree with Wise Money Matters that Net Worth should not be the only indicator of financial health, but is there a good dashboard or collection of indicators that can give a pretty good view?
If you were to only see ~5 statistics on a person and asked to judge their financial health solely on those statistics, which 5 would you choose to give you the best view?
examples: Net Worth, Debt to Income Ratio, Total Debt, Total Income, Credit Score, Monthly Expenses, etc
I’m interested to read what everyone thinks.
The disparity between owners and renters is surprising– I wonder how different that will be for 2009 vs. the 2007 number they give?
But I can at least be glad I am above median by age, and maybe income level– but is there a typo there?
# $75K – $99K: $301,475
# $100K – $124K: $301,475
@Ian – you bring up something that is close to my heart (and work). If you were to give me five statistics, I’d also want them on a trailing 1, 3, 5, and 10 year scale. This is so we can not only guage where you are today, but also the trajectory of where you’re likely to go tomorrow.
The key stats vary in importance based on stage of life, but ultimately, the top five you need are:
1. Net Worth
2. Investable Net Worth
3. Income
4. Expenses
5. Total Debt Outstanding
There is no utility in credit score, debt-to-income ratio, and many other credit related issues. With the five pieces of information above, I can very quickly assess where someone is financially. Many of the other metrics tossed around in finance are created for lenders, not individuals. This distinction is critical to remember in understanding your own relative succes or failure in personal finance.
By the way, instead of thinking in terms of debt-to-income, I think we would all be much better of focusing on expenses-to-net worth. That’s the number that really counts–at least if you want to retire or reach some level of financial security.
Hm, the differences between the median NW for my age group vs. income are wildly different. So I took the mean and median of the two numbers, and I’m above both. I guess I should be shooting to be above the median for income level, though.
I think that the CNN net worth comparison tool doesn’t present a valuable picture on what individuals should compare themselves to. It is widely known that individuals have been poor savers since the mid eighties. Taken that and factoring in the poor stock market over the past decade and you get people with low net worths.
The best net worth comparison is using the Prodigious Accumulator of Wealth (PAW) calculation from “The Millionaire Next Door.”
PAW formula:
First
Multiply your age times your realized pretax annual household income from all sources except inheritances.
Second
Divide by ten.
Third
This, excluding any inherited wealth, is what your net worth is expected to be.
If your net worth exceeds the value obtained from this formula then you’re doing great!
This formula definitely does not work for young workers. A 25yr old just out of college with a 40k/year job has no way of having 100k net worth. Anything pre-30 seems to be a stretch.
Expected NW ($k)
30 40 50 60 70
40,000 $120 $160 $200 $240 $280
60,000 $180 $240 $300 $360 $420
80,000 $240 $320 $400 $480 $560
100,000 $300 $400 $500 $600 $700
120,000 $360 $480 $600 $720 $840
140,000 $420 $560 $700 $840 $980
160,000 $480 $640 $800 $960 $1,120
180,000 $540 $720 $900 $1,080 $1,260
200,000 $600 $800 $1,000 $1,200 $1,400
Perhaps that 25-year-old received an inheritance.
I agree. I tried it out with my age (early 30s) and I would love to know how I was supposed to have accumulated more than $150,000 by now. Even if I hadn’t done extra schooling, I don’t think I could have accumulated an average of $15K per year.
Mind you, I’m in Canada so I don’t think these numbers apply to me at all. (Our taxes are higher, and most of us don’t have employers to match our retirement savings contributions).
@Beth – since you’re a Canuck with a rather robust retirement pension system compared to your southern neighbors, to get a good yardstick of where you are, do the following:
Current Expenses – Expeceted Pensions = Income Needed from Investments
Take your net worth and divide it by the ‘income needed from investments’ and this will give you a multiple. When you get somewhere around 20 to 33, you’re ready for a solid retirement.
As for where you are on a timeline, it really doesn’t matter except for ego’s sake. The bottom line is that if you continually move your net worth-to-expenses multiple up each year and are tracking to get to 20 to 33 by your desired retirement age, you’re way ahead of the game. As an FYI, if you get to 20 to 33, you’ll be wealthier on a relative basis (lifestyle wise) than over 90% of your peers.
lol. I’m not sure I’d call the CPP “robust”. (I’m not even sure it will still be around by the time I retire!)
Thanks for the formula. I tried it out, and I’m glad to see a number that doesn’t require me working until I’m 80!
I’m in my early 30s and my NW is significantly north of that, without an inheritance. I earn a slightly-above-median income (though after the dot-com crash, I was out of work for a year, save for some freelancing). But I’ve leveraged what I got. I bought a fixer-upper house in a decent neighborhood in 2000, totally remodeled it, doing a lot of the work myself, and sold it in 2005 for double. I’ve also been investing in primarily energy and precious metals companies since 2002, which even after the crash last autumn, have still done spectacularly. In 2003 I bought some vacant farmland for only $3k/acre, and now with a house on it, it (the land alone) is worth three times that. And the off-grid home I built is worth triple what I put into it as well. For the past decade, I’ve seen little of my income directly — most if it went directly to investment accounts or to pay debt. Thus, I’ve lived humbly and my money is always kept working. Now those debt payments are starting to get smaller and I’ve got ample assets to back up that debt. My total assets are bordering on $1 million, with my debt and net worth about half of that. The best part is that my off-grid home is a capital asset, making me more money (or rather saving me from having to pay utilities), which means I can pay down my debt even faster.
When you say you sold the house for double, was that after accounting for the cost of remodeling, including the market value of the work you did yourself? What about the interest on your debt (tax-adjusted, of course)? If so, congratulations! You earned just under 15% annualized return. That is far better than the S&P 500 Index does over most five-year periods, though it might or might not be better than what the S&P 500 Index did over _that_ five-year period (2000-2005). If the “doubling” did not take into account those things, how much did you really make? 75%? That would be an annualized return of 12%, still fairly impressive. 50%? That’s just under 9%, quite competitive with the stock market. And you did a lot more work and took on a lot more risk and debt.
you forget that some have inheritance
I like the simplicity and the sense of this indicator, but I still have a lot of questions about it. First, are we looking at individuals or families? If we’re breaking it down, it says that my husband should be worth almost a half a million dollars and I should be worth $40,000, because I’m primarily a stay-at-home parent right now. I’m assuming that we combine them to make our single economic unit. But what if I’d just given up some well-paying job to stay home – shouldn’t we have significantly more assets than this year’s figures show.
I’m not saying that it isn’t a useful tool, but nothing is perfect.
I think they looked at households but I wouldn’t look tooooo much into it because of the variance you talk about. You’re a stay at home parent probably in part because you are married and because your husband is working/worth that amount. If you were single, you might not be a parent and you might not be a stay at home anything… so it’s difficult to compare things like that. However, in the end, these numbers are just useful to know but not THAT useful, right?
these numbers seem high, like they’re counting home value as net worth when they should be doing (equity in home-mortgage, leaving many if not most people negative here).
the median under 25 net worth is positive? impossible.
the median retiree is worth $543,000? good lord.
median white dude is worth $692,000?
something’s fishy.
I think you mean home value – mortgage, which equals equity. Net worth means value of assets – total amount owed.
@Lamar – the stats listed at the top of the article are means and not medians. As Jim points out, there is a big difference. The median net worth of retirees is $161k…err…broke.
Those numbers sound fishy to me too. I mean, its very possible here in the San Francisco Bay Area, but is this supposed to be the average for the rest of the country (sans NYC, etc)?
Regarding the net worth drop, a co-worker of mine used to work for a company that went bankrupt late last year. About 60% of his retirement portfolio got wiped out due to his having invested in company stock that became worthless.
Compared to his unfortunate situation, even the average of 23% net worth drop doesn’t seem too bad.
That is unfortunate. I don’t own any shares of my company’s stock, but 60% seems like putting too many eggs in one basket.
A majority of people do not exceed the Prodigious Accumulator of Wealth formula value. Thus, it’s a significant accomplishment when somebody does.
As for my household, I think it will take us another 3-5 years to achieve PAW status.
The age statistics, especially under 25, are probably very imprecise. Especially as many entry level employees come out of college with loans and negative net worth, but decent paying jobs.
But nevertheless the other statistics are very interesting, especially the self-employed vs. working for someone else. Definitely encourages you to be an entrepreneur.
It’s tough when you are just starting out to build up net worth. These are interesting numbers, but it really dependent on your current situation, whether you have huge loans from college or gained an inheritance.
That’s a great chart Jim. I am not paying any attention to the net worth ( which btw I am 10 yrs ahead according to the chart), as the most important thing is having enough income, be it alternative, passive,investment, employment, you call it. If you have assets generating income, you are ok. These assets could be a dividend stock, a condo rental, a CD or even yourself. That’s right, your abilities to generate income are important as well.
The higher your net worth, the higher the income it can generate, and the more risk you can tolerate. If two people are equally risk-tolerant but one has $100K to invest and one has $1M, the one with $1M can afford to put at least some of it in investments which have a high potential payoff but a high potential downside. The one with $100K might not feel as comfortable doing that. Of course, if both people are not willing to undergo any risk, the point is moot.
@Andrew – while your point makes complete sense mathematically, it is often the reverse that is true. Investors repeatedly choose a higher risk portfolio with lower dollar figures than with higher dollars. An investor with $100k is far more likely to have a high risk portfolio than an investor with an extra zero at the end. I forget the name of this phenomenon, but it’s been researched a great deal. One factor in this is that a $1mm portfolio will typically be managed by the investor and and advisor whereas the $100k portfolio is much more likely to be managed alone (if managed much at all).
Nice post!
I love eye opening info like this!
These numbers must come from surveys of readers of Money Magazine! The numbers are impossibly high. And I mean impossibly!
Think about it logically. If medians or averages of net worth were truly this robust, then why is the country in the tank over the CREDIT crisis??? No credit=no money–not possible if the average person has this much money. The credit crisis has come about precisely because the average Dick and Jane don’t have any money. Point of evidence: the perponderance of frugality blogs!
These surveys give the impression that there are armies of people with six figure bankrolls (median means 50% of the population are above the number indicated).
I spent many years working in a business in which I not only took financial information from people, but also had to verify it’s accuracy. While there was an occasional household who had more money than they knew about, the vast majority overstated their assets, and understated their debts by a wide margin.
If you poll people by phone interview in regard to their finances you will turn up numbers that are much healthier than reality. Far more people are in denial about their finances than these surveys will ever reveal.
Take the numbers with a very large grain of salt!
@Kevin – the numbers provided look fairly accurate to me. If you look at page 11 of the .pdf government report, you’ll see that the breakdown by age doesn’t show anyone as being rich when looking at the median net worth. The highest net worth by age at $253k isn’t much money at all. Considering the median household income is about $50k, this would equate to a 5x net worth-to-expenses multiple. That said, without social security or other income, this group would have a short lived and rather meager retirement–which is exactly what is happening.
Some data points that were interesting were the declining net worth from the 55-64 group to the older groups. One can infer that this group is either retiring too early, living above their means, healthcare is pinching wealth, and/or are finding it difficult to gain employment. I’d say all of these are true to some extent.
Regardless, a $253k retirement nest egg is far from robust.
Reading this piece makes me want to worked harder to establish a positive networth, based on my age and income i am no way near the expected Networth that is stated, bad financial decisions will do that to you
I agree that they should combine the factors rather than list by factor e.g. age and income and profession and education etc. rather than this is median for that and this is median for this.
@Madame X and Lamar — there are a lot of people out there, especially baby boomers as well as retired people who bought homes long before the bubble. Anybody who bought a home in the 90s and didn’t take any equity loans has a lot of equity. Those who bought in the 70s even more so. Especially in the areas which weren’t the centers of sub prime activity. Not to mention that those who moved in the 90s and rented out rather than sold their old property made a lot of money.
For example, here in Southern NY state, the condos that cost around 100K in mid-90s (one bedroom condos) are still selling a little under 300K now. Townhouses like mine that you could buy for 180K around 97 as the prices only started to pick up from the 90s lows are selling for close to 400K. Sure it is below the top, but it is still a lot of equity. Even if it is down to say 380K now, it’s still plenty. Houses that you could get for 240K, you could sell even now for over 500K, maybe even 600K. Those who bought at the right time and just lived in their homes and paid mortgages and didn’t use their homes as a piggy bank have a lot of equity.
When you add all this equity, you easily get to high net worth. One reason I don’t like to include the value of my home or anything that I don’t consider an investment in my calculations.
@kevin: “Think about it logically. If medians or averages of net worth were truly this robust, then why is the country in the tank over the CREDIT crisis??”
Hm… Maybe because businesses need credit too? Because banks need credit as well? Maybe because some shipping companies, for example, only earn money after they deliver the goods, but heir crew wants to be paid upfront. Do you know that ships of even some stable shipping companies as far away as Greece had ships stranded in ports because they couldn’t get loans to pay their crew?
Do you know that last September you could get bonds of American Express with AA credit rating and get the same double digit yield as on junk bonds? Even some Johnson and Johnson bonds had very high yield.
You do realize, that most corporations don’t just keep cash in vaults and cannot match the timing of their revenue precisely to your paycheck. No credit = no money to pay salaries = layoffs.
It was even worse for interbank lending. Banks normally don’t keep your deposits in a vault; otherwise, they wouldn’t make any money, right? They keep some percentage, they lend the rest. If too many depositors come to withdraw, they may get a quick loan from another bank, then return in a few days. This interbank lending stopped. There was a panic, people started to withdraw money from banks. There were runs on money market funds – it may seem unimportant to you, but a lot of corporations and institutions and funds keep their cash in money market funds – and they were in danger of collapsing.
I am really surprised that there are still people around here who don’t understand that credit crisis was about businesses and jobs a lot more than about individuals.
There is a mistake in the article. The $120,300 is median net worth. The rest of the 2007 figures are described as medians, but they are actually the means.
Which is obvious, because the “white, non-Hispanic”, and the “nonwhite or Hispanic” figures are both greater than the overall median. This would be impossible. Check the FRB article (which they link to) for the real numbers.
Finance Junkie,
I like the PAW formula- I’m 36 with a salary of about $250k per year. NW is about 1.7 M so I am double that of the PAW formula.
Expenses are $36k a year so according to Michael Harr I am at a ratio of 50 or so…
Not ready to retire just yet!
-Mike
@Mike Hunt – You might not be ready to retire yet, but you certainly could. Although, I’ve never met someone with those stats who would actually consider retirement so early. Their responses were always, “Well, what would I do then? Be bored?” Most PAWs will work until they physically or mentally cannot whether their chosen work be paid or unpaid.