What is the average American net worth by age? | Savings and Budget
Knowing how much money you have at your disposal in your checking and savings accounts is important for budgeting and everyday expenses. But these numbers don’t take into account other critical aspects that contribute to your overall financial position, including liquidable assets and liabilities, such as outstanding debts. This is why knowing your net worth – and how it compares to others in the United States who are about your age – can be helpful.
What is net wealth?
Your net worth is the total value of all your assets after subtracting your liabilities. Assets may include cash, property, vehicles, antiques, fine jewelry, insurance policies, investments, or anything else that can be liquidated for profit. Liabilities can include unpaid student loans, credit card bills, mortgage balances, or any other payment you owe to another person, whether a person or a business.
Salaried income is not usually considered an asset, although it is money in your pocket. This is because you can have a high income but spend all that money on obligations; Conversely, you can earn a relatively moderate wage at home but a significant amount of your income may be directed directly into retirement accounts. So the most important number is what is regularly found in various savings, retirement and checking accounts.
Your net worth can be positive or negative, depending on whether the present value of your assets exceeds the value of your liabilities, but you always want to aim for a positive net worth. Combining the total value of both your assets and liabilities reveals whether you are heading financially in the right direction.
For example, if you owe $99,000 on your student loans and have $1,000 unpaid credit bills, your total liabilities equal $100,000. But if you also had $30,000 in cash, your net worth would be negative $70,000.
On the other hand, if you had $100,000 in property, $51,000 in cash and $1,000 in unpaid credit card bills, your net worth would be $150,000.
Why is knowing your net worth useful?
Your net worth isn’t everything to your financial picture. In theory, you could have a high net worth but a low credit score, which could make it difficult for you to take out loans to get more assets. Or you may have a low net worth but a high credit score and a manageable debt burden.
Additionally, there are times when your net worth may steadily decline but not necessarily be considered a red flag, such as if you liquidate assets and spend the resulting money during retirement. And a negative net worth when you’re young and starting your career after going to college and accumulating some student loan debt might not be a warning sign either, considering the number of business contracts you’ll have to pay off and accumulate assets.
However, if you know your net worth and the factors driving this number up or down, you can evaluate how best to increase assessed or stable assets or dispose of depreciated assets or accumulated liabilities.
The average net worth of an American family
Both average and net household wealth increased between 2016 and 2019, according to the US Federal Reserve. Average net worth rose 2% to $748,800 between 2016 and 2019, the bank reported in September 2020, the most recent year for which this data was published. However, average net worth increased by 18% over the same time period to $121,700.
You may be wondering why the average and average net worth numbers are so different. This is because when you take the average of something, you sum each value in a data set and then divide that number by the number of individual values. When calculating the median, just look at the middle figure within the data set. However, the median number can be significantly higher or lower than the median number if there are outliers – meaning that a group of people with a significantly greater net worth than the rest of the group can raise the mean even higher.
Average net worth by age
The average net worth of someone under the age of 35 is $76,300 as of 2019. From there, the average net worth is rising steadily within each age group. Between 35 and 44, the average net worth is $436,200, while between 45 and 54 this number rises to $833,200. The average net worth of one million dollars is between 55 and 64, reaching $1,175,900.
Average net worth rises again for those aged 65 to 74, to $1,217,700, before declining to $977,600 for those over 75.
However, the average net worth within each age group is lower than the average net worth.
Ways to grow your net worth
Regardless of your average net worth, your net worth goal should be based on your financial, personal, and professional goals. If you want to retire early and lie on the beach for your remaining decades, you will need to increase your net worth quickly. But if you have a few goals that require large assets to achieve, a financial advisor may suggest targeting a relatively lower net worth.
Asking how much your net worth should be “really refers to an assessment of your goals and values,” says Martha Sullivan, president of Provenance Hill Consulting LLC. “Because the default answer is ‘as much as possible.’ But if you think about it, (that number) isn’t really as much as possible.”
“Would I be happier with double my net worth? I don’t know the answer to that question,” she says. “You have to think, ‘What do I have to do to make that happen?’ “
No matter what number you and your advisors decide to target for your net worth goal, here are some tips for increasing your net worth:
- Get rid of your debt burden, and tackle high interest debt as quickly as possible. In terms of building your net worth, high interest debt is like an unplugged pool of money that you can use to achieve your goals. Put out such debts as quickly as possible.
- Minimize frivolous or lavish spending, and stick to a budget as much as possible. Back to basics. While you should not give up everything that makes your life interesting or interesting, try to find alternatives that allow you to have fun without spending a lot of money at once.
- Put your savings and emergency funds into liquid growth accounts, such as high-interest savings accounts. Although high interest savings accounts aren’t the fastest way to grow your money, your savings will grow at least somewhat more than if you sat in a low interest account. But make sure that whatever higher interest account you choose to deposit money and emergency savings, you can access the funds quickly.
- Consider maximizing your retirement contributions, taking advantage of employer matches and tax deferrals. Once you have established your near-term financial goals, consider whether increasing your retirement contributions could help. But even if you just transfer some of the income to your retirement accounts, you’re still helping your “futures” better endure your golden years.
- Consider higher-risk investments if you are younger and have time to recoup any losses. Pa Minozzi, founder of a San Francisco-based financial advisory firm focused on high net worth individuals, says noting the abundance of technologies and resources to help you make informed decisions about new types of investments such as cryptocurrencies. “You’re not going to build a financial fortune by sitting on what you have and not risking a bit.”
- Don’t put all your eggs in one basket: diversify your investments and assets in case one of them falters. If you put all your money into stocks of one company, for example, your investment portfolio becomes essentially dependent on doing that business alone. Look for ways to diversify your investments to protect yourself if an investment stops performing according to your expectations.
Think about starting or getting a business. “I don’t think business ownership is for everyone, because it isn’t,” Sullivan says. “But if you’re going to be a business owner, you invest in an asset and you deserve to have a return on the investment in that asset as you would any other asset,” whether while owning the business or when you exit he-she. Business geared toward building net wealth shouldn’t rely on owner participation, you note, because that dramatically changes the owner’s ability to sell the business later.