Wednesday, May 20, 2015

Average Net Worth of Americans

How does your net worth stack up to others?  Does it really matter?

Comparing yourself to others is always a path fraught with peril - for a number of reasons.  First, most others are brain-dead fools who over-consume and under-save and vote based on social issues.   So saying you are "doing better" than your bankrupt neighbor is an exercise in self-delusion.

But we all do it.  We look to the herd for normative cues as to how we are doing.  If we are doing better than the herd, we pat ourselves on the back.  If worse, we say the game is rigged and "unfair".

You can see why comparing yourself to others is a pointless game.

The real comparison, is to see how much you have set aside (or in a pension or whatever) and figure out whether that is enough to meet your life goals and fund your retirement.   What Bubba across the street has saved, really isn't relevant.   You may have twice as much as he has, but still far less than you need to retire.

But, we all want to know - how much do others have saved?  Am I doing better than the norm?  Worse?  What? 

Curiosity killed the cat.

The problem is, what the average American has saved is hard to quantify, as there are a few "whales" out there who have Billions, and this skews the average.   Median savings is a far more relevant number - and far scarier.

But it gets weirder.  Depending on who you talk to , we are either the richest country in the world - or the poorest:

Middle class Americans: Not so wealthy by global standards ...
Jun 11, 2014 - Americans' average wealth tops $301,000 per adult, enough to rank us fourth on the latest Credit Suisse Global Wealth report. But that figure doesn't tell you how the middle class American is doing. Americans' median wealth is a mere $44,900 per adult -- half have more, half have less.

The Typical American's Net Worth By Age: Here's Where ...
The Motley FoolJan 26, 2015 - Photo: Quozio. Ask most people what their net worth is and they probably don't know. Show them how to calculate it and they'll be dying to ...

In the news
How does your net worth compare with the average American's? - 1 day agoIt may be surprising, however, to learn that the average American's median net worth peaks in the year just following retirement, and then slides ...
Compare Your Net Worth to the Average American's
Money - 1 day agoMore news for average net worth american

The Average American Net Worth Is Huge! | Financial Samurai
Then came a 2014 Credit Suisse survey highlighting the average net worth in America is a whopping $301,000 (see pic)! Regulars here know that I've been pretty positive about the economy for a while, and this stat just makes me even more so.

It Only Takes $10,400 to be Richer Than Most Millennials ...
The Wall Street Journal
Sep 4, 2014 - Are you a millennial with a net worth of more than $10400? ... released today, which tracked the net worth and income of American families in 2013. ... (the median) but it takes $75,500 to be richer than millennials on average.

Compare Your Net Worth to the Average American's ... - Time
1 day ago - It may not be the best way to evaluate your accomplishments, but knowing how your financial situation stacks up against your peers can offer ...

Wealth in the United States - Wikipedia, the free encyclopedia
WikipediaWhen observing the changes in the wealth among American households, one .... and 2007 incomes of the top 1% of Americans grew by an average of 275%.

To some people, the "average" savings of $301,000 seems like a "huge" amount.  To others, the "median" savings of $44,900 seems pitifully small.  Same numbers, different perceptions!  And it gets harder to pin down, as it varies by age as well.

And then there are those who have no savings (like some friends of mine) but huge pensions - well over $100,000 a year.  That's the equivalent of well over $2,000,000 in savings, yet it would not be counted by any "net worth" calculator on the market.

And then we have to ask - where does this data come from?  Well, it doesn't come from computers linked to your bank account.  It comes from surveys.  And survey data can be very misleading, as people lie (to themselves, and others) about how much money they have - or think they should have.   And then there are people like "Financial Samurai" who think $310,000 is a "huge" amount of money.   It isn't.  It isn't enough to retire in a trailer park in Florida, much less in a nice house somewhere.

And then there is the question of what is net worth exactly?  As I noted in my Millionaire versus millionaire posting, many folks don't count equity in the home as part of your "net worth" even if it would be liquidated as part of your estate.   And indeed, you can sell a house and live somewhere else fare more cheaply.

What it comes down to is another number provided by the Bureau of Specious Statistics.   The net worth of the average American is damn hard to calculate and any numbers bandied about based on self-reported data, that don't take into account pension plans and home equity, are basically nonsense numbers.

 A man with a $100,000 a year pension and $50,000 in the bank has a real "net worth" of far more than $50,000.  And if his $500,000 house is "paid for" then he is a wealthy man.  But our friends at the Bureau would have you believe he is "poor" because he has only $50,000 in the bank.  Is he?   Of course not.

Similarly, the fellow with $500,000 in his 401(k) might seem to be "rich" but using the 5% rule, that amounts to only $25,000 a year in income in retirement, which with Social Security, might net him $40,000 a year in retirement benefits - far less than the median or average income in the USA.  And if his house is over-mortgaged, well, does he really have any net worth at all?

It gets down to the same thing I have been saying over and over again - you have to use your own internal compass in these matters, and worry less about what the herd is doing, because the herd is basically insane.  They all have iPhones and think Justin Beber is a "star" or something.   I think they smoke crack.

So, if you look at the TIME article above, and see that the "median" net worth for someone in your age group is say, $150,000 and you are doing better than that, well, don't think you are home free.   You've basically saved up three years worth of income, perhaps less if you have a high-dollar lifestyle.

And sadly, most of the financial media is like this - providing data that is of little use, inaccurate, obsolete, self-reported, or just downright wrong.

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NOTE:  One interesting piece of data from the Wikipedia page is the net worth of self-employed individuals versus those employed by others.  Look at it - it is startling.   But this reflects the necessity of the self-employed to self-fund their retirements.  It may also reflect that the self-employed, not getting money in weekly paychecks, tend to look at money in a different light - in terms of net worth, not monthly cash-flow.