Manage Your Monies

Average Net Worth by Age – Where Do You Rank?

Manage Your Monies

When it comes to your average net worth by age, everything is relative.

Keeping track on your net worth will help you achieve financial freedom, and knowing where you rank will help you see how you’re tracking for retirement.

Below are the average net worth by age according to the Federal Reserve Consumer Finance Survey 2016:

Are these numbers far above your net worth? Before you panic, understand that the wealthy are skewing these results.

Average Net Worth by Age is Skewed

Since so much of wealth is concentrated at the top, average net worth is a skewed metric. To give you an example of this, suppose you live in a city of 100 people with an average net worth of $100k. That means the total net worth of the city is $10 million (100 x $100k).

Now imagine that Bill Gates moves in. With his $94 billion in net worth, the average net worth of the city has skyrocketed to $931 million!

Obviously the rest of the city has not increased their wealth thanks to Bill Gates, their wealth is exactly the same as it was. Therefore, we recommend looking at the median net worth for a more realistic idea. In the Bill Gates example, the median net worth of the city will still be $100k.

The Federal Reserve gets this as well, and included median net worth in their report. Let’s look at those numbers again:

When you compare the median net worth with the average, you can see just how skewed these results are. Now that we have the numbers, let’s look through some of the key takeaways.

Education is Incredibly Important

While more and more people are shunning college educations, particularly their soaring student loan levels, the Federal Reserve’s study shows just how crucial it is to your future net worth.

The median net worth of a family with a college degree is $292k. Let’s compare that to the median net worth of the remaining education levels:

The median net worth of people who hold a college education is over 4x that of somebody with a high school diploma. Clearly a college education is worth the money.

Homeownership is a Huge Driver

The difference in net worth between homeowners and renters is insane. Homeowners have a median net worth of $231k, which is 46x the $5.2k in net worth the average renter has.

Homeownership has tax advantages in the United States since you can deduct the interest, and paying your mortgage builds equity in your home. It should be one of your key pillars in your hierarchy of savings. Renting, on the other hand, is a monthly expense which does not go to an asset.

Most Rich People Live in Urban Areas

The median net worth of people who live in urban areas is $99k, while in rural areas it is $88k.

Seems pretty similar, right? Let’s compare that to the average net worths:

Nearly 3x of the average net worth is in urban areas. Since averages are skewed, we can see that most wealthy people are indeed living in urban areas.

Rich People Have Most Wealth in their Businesses

Another interesting statistic is that median family has most of their net worth in their primary residence, which is $185k. The average family, on the other hand, has most of their net worth in business equity, which is $1.2 million. The value of their primary residence is only $301k.

Once again, we can see that most wealth is uncovered from owning their own business. While running a business has many risks, there are many rewards that make it worthwhile.

The Bottom Line

Average net worth by age is an important number to see how you stack up to others, and is a great litmus test for whether you are on track for retirement.

With that said, wealth is skewed towards the wealthy, and we believe median net worth is a more accurate statistic of where you rank to others. There are also formulas to calculate if your net worth is on track.

You have two ways to save more money: make more money, and spend less of it. Doing both of these and following our hierarchy of savings will help you move up the ranks in net worth.