Shocking Truth: Average Net Worth By Age Revealed
We live in a world that just isn’t equal.
Picture this, the bottom 70% of the global population only controls 3% of global wealth!
In contrast, the eight wealthiest people in the world have a combined net worth that equals to the combined wealth of the bottom 47% of the population in the world.
Contrary to what people think, the top 1 percent may not be as wealthy as you thought, you only need to have a net worth of 770 thousand dollars and you can consider yourself among the top 1 percent.
Now I say “only”, because it might not be as much as some people think, it doesn’t even reach a million dollars.
But what we want to find out today is where you’re on this scale, or where you’re supposed to be.
Are you doing worse than your peers or are you ahead of everyone else?
If you aren’t in a good financial position, you can always change that because it’s within your control.
Whether you’re a fresh graduate, well into your career or just cruising through life, it’s never too late to start saving and investing to ensure you’re headed towards the right direction.
How Is It Calculated?
Before we start, it’s important to know how your net worth is calculated.
Many people often mistakenly assume that your net worth is determined by your annual income but that’s not the case.
Simply put, net worth is what you own minus what you owe.
For example, if your home is worth $400,000 dollars and your cars are worth $60,000 dollars and other small assets total $10,000 dollars.
Your total asset value would be $470,000 dollars.
But that’s not the full story, as your debts haven't been accounted for yet.
Let’s say you have a balance of $200,000 dollars left on your mortgage, $15,000 dollars in car loans, and $5,000 dollars in credit card debt.
That's a total of $220,000 dollars in debt that must be considered.
Subtracting the debt from the total value of all assets would leave a total net worth of $250,000 dollars.
As you can see, this calculation has nothing to do with how much you earn.
According to the Federal Reserve, the mean, or average net worth for US households was surprisingly high, at $748,800 dollars.
You would think the average person wouldn't have that much money, but it’s the ultra rich households of billionaires and multi-millionaires that drive the mean extremely high.
Therefore, we need to look at the median or midpoint value, as that would give us a better picture of everyday people that you see on the street, probably someone more comparable to yourself.
The overall median net worth of US households is $121,700 dollars, which is a more reasonable number that can be surpassed easily with a little bit of effort.
It’s worth noting that these figures were taken in September 2019 and released in 2020, so it might not be entirely up to date.
But this should still be relatively accurate as a representation of where you stand and the goal to reach towards.
Figures Presented In A Table
Without any further ado, this is the table that I have created based on the report released by the Federal Reserve.
The data has been separated based on 6 different age groups, and you can see that there are 2 columns, 1 being the median net worth, and the 2nd one being the mean (or average) net worth.
Now you might wonder what all these numbers and technical jargons mean?
Don’t worry, as you continue reading the article, I will make it easier to understand by segregating the numbers based on people in their 20s, 30s, 40s, and 50s.
People In Their 20s
With that said, let’s start with the age group of people in their 20s who have zero dollars in their savings, which is honestly not bad.
The reason I said not bad is because most 20-year-olds have a negative net worth.
The main contributing factor to this is student debt.
Let’s face it, taking on a huge student debt while you’re barely earning enough to survive can be a huge financial burden if you lack external financial assistance.
You might take a part-time job that pays you the minimum wage but that hardly covers your bills, let alone paying back your student debt.
So if you have a net worth of exactly zero dollars in your 20s, you would be financially ahead of most in your age group.
However, this shouldn’t stop you from budgeting and making smart financial decisions because often, it’s only later in your life that you start realizing the consequences of your financial decisions.
You can blow $2,000 dollars in a party over a weekend, and you won’t really feel it, but if you saved that money instead, your future self will thank you.
If you’re smart enough to start investing even as little as 5 to 10 percent of your income in your 20s, you’ll definitely become well above average after less than a decade.
People In Their 30s
Moving on, we’ll head to the next age group of those around their 30s.
Now, when approaching this age, if you want to be doing at least decent, you should have at least six months of your income saved up as an emergency fund.
If we take the average household income as a benchmark, this fund would be roughly $30,000 dollars.
It’s always better to be safe than sorry.
As many unexpected things happen in life, and some might even lead to bankruptcies which could come in the form of a huge hospital bill, so do be mindful.
As for your net worth, according to the table shown at the start, for someone who is under 35, their average net worth is $76,300 dollars.
However, looking at the average isn’t the best representation for the masses, again, that’s because a small number of wealthy people tend to skew it upwards.
Which is also why the median figure is so low at $13,900 dollars.
On the bright side, this isn’t hard to achieve or even surpass.
The reason this number is so low is due to the fact that people in their mid to late 20s might still be in the early stages of their careers, thus not earning a healthy income yet.
Moreover, pesky student loans are still outstanding, making it hard to raise that net worth number.
Even though average adults have assets like a house and a car, their liabilities such as the student loan and mortgage would overshadow them.
However, this isn’t something you need to worry too much about, as you begin to cover your student loan and your mortgage, your net worth would quickly build up.
People In Their 40s
As you start hitting your 40s, you would be doing better as your financial progress picks up a little.
A career has usually been established and incomes have increased, but new responsibilities also arise with growing families.
The purchase of a home has probably aided in this net worth growth, as you pay your mortgage down and own an appreciating asset instead of renting.
Retirement accounts have hopefully been established and are being added to on a regular basis, but many people haven't begun to think about retirement yet if at all.
As you're earning more, a rule of thumb is to have at least three times of your income saved up.
So taking the median income of $59,800 dollars for people in their 40s, this figure multiplied by three would mean you should have almost $180,000 dollars saved up.
However, this only serves as a benchmark, as some people might struggle to save this number, given that people have families and lots of bills to cover at this stage of their lives.
But it’s still wise to be better than the average if you don't want to be struggling financially.
People In Their 50s
By your 50s, your net worth should’ve grown to a sizable amount not just due to having owned stocks or property for many years, but also because you’re nearing your retirement age.
While there aren't always as many life changes from the previous age group, some households are beginning to see kids move out, which may or may not aid in the family budget.
Families in this age group are usually at the same house they’ve been living in, aside from the occasional upgrade to accommodate a growing family.
Still, many fail to begin planning for their future due to the lack of understanding of investments or maybe they just don’t think investing is that high of a priority.
Debts sometimes become larger as the purchase of luxury goods become increasingly common.
This is possible due to people having the feeling that they deserved it having worked so hard for many years.
While this isn’t wrong, it’s also important to have money saved up.
You do need to prepare for your retirement if you intend to live comfortably without relying on your children or the government.
The rule of thumb for people in their 50s is having five times your annual income saved up.
This might sound impossible to reach, but if you save a small portion of your income over the previous decades, it would be more than enough to reach this target.
How To Increase Your Net Worth?
Now, having gone through all these numbers, what should be your main takeaway?
It’s important to note that net worth is just one measure of tracking your financial situation.
However, it doesn’t tell you when you’ll be financially independent.
For example, a person with a 5 million dollar net worth might still need to keep working because of their monthly payments, as they have a 4 million dollar house and one million dollars in cars, with no income producing assets.
While someone whose net worth is just $500,000 dollars could be retired without having to work another day in their life.
Now you know what not to do, but how do you actually increase your net worth?
If you're not already paying down student loans, credit cards and other debts, then this should be a priority.
Because this means you won't have to pay interest to lenders and your income will be freed up.
Not to mention the psychological benefits of being debt-free.
Secondly, invest money into appreciating assets like stocks, ETFs, and real estate that provide compounded returns.
This way your investments can snowball over time.
Another way to become wealthier in the long run is to find ways to reduce your expenses while increasing your income.
There are so many ways for you to save that you probably haven’t thought of.
On the other hand, your income isn’t just limited to your 9 to 5 job, you can create other sources of income from side gigs that can be directed towards becoming wealthier.
So, that's it.
If this article has been insightful for you and gave you a better idea of where you stand, be sure to share it with your family and friends!
- Ivan