Determining whether you are wealthier than most people you know involves comparing your net worth to average and median figures for different age groups.
It's important to understand the difference between median and average net worth. The median net worth represents the middle point in a distribution, meaning half the families have more, and half have less. It offers a clearer picture of a typical family's financial situation, as it is less affected by extreme values.
On the other hand, the average (or mean) net worth is calculated by dividing the total net worth by the number of families, which can be skewed by very high or very low net worth figures. Together, these metrics provide a comprehensive view of financial health across different age groups.
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According to the most recent Federal Reserve Board Survey of Consumer Finances, released in October 2023, the median net worth of all U.S. families in 2022 was $192,900, while the mean (or average) net worth was $1,063,700. Here is a detailed breakdown of the average net worth by age for 2022:
Under 35:
- Median net worth: $39,000
- Average net worth: $183,500
Ages 35-44:
- Median net worth: $135,600
- Average net worth: $549,600
Ages 45-54:
- Median net worth: $247,200
- Average net worth: $975,800
Ages 55-64:
- Median net worth: $364,500
- Average net worth: $1,566,900
Ages 65-74:
- Median net worth: $409,900
- Average net worth: $1,794,600
Ages 75 and older:
- Median net worth: $335,600
- Average net worth: $1,624,100
These figures highlight significant growth in net worth across all age groups from 2019 to 2022, with the largest increases seen in younger families under 35, although they remain the least wealthy overall. In contrast, those in the 65-74 age range hold the highest average net worth.
Tips to Boost Your Net Worth
Pay Off Debt: Reducing debt is a critical step in increasing your net worth. Focus on paying off high-interest debt first. Financial experts recommend making extra payments whenever possible to considerably lower your overall debt burden and improve your net worth.
Max Out Retirement Contributions: The maximum amount to retirement accounts, especially if your employer offers matching contributions, can significantly increase your net worth. Retirement contributions grow your savings and provide tax advantages that can enhance your financial position over time. Experts like Suze Orman strongly advocate for using Roth accounts. Contributions to Roth IRAs and Roth 401(k)s are made with after-tax dollars, meaning withdrawals in retirement are tax-free.
Set Clear Financial Goals: Setting and achieving specific financial goals can guide your wealth-building strategy. These goals can be short-term (like saving for a vacation), midterm (paying off student loans), or long-term (investing for retirement). Regularly review and adjust your goals to stay on track.
Invest Wisely: Diversify your investments to include a mix of stocks, bonds, real estate, and other assets. This diversification helps mitigate risks and can lead to higher returns. Consulting a financial advisor can provide guidance tailored to your financial situation and goals.
Automate Savings: Setting up automatic transfers to savings accounts ensures consistent saving habits. The 50/30/20 rule is a popular method where 50% of income goes to necessities, 30% to wants, and 20% to savings and debt repayment.
Using The Power of Compound Interest
Investing 10% of your income consistently can have a profound impact on your net worth due to the power of compound interest. For example, if you invest $10,000 annually at a 6% return, after 10 years, you could have approximately $131,000. Over 30 years, this investment could grow to more than $800,000, demonstrating how compound interest can significantly increase your wealth.
Everyone’s financial journey is unique. Understanding your current position is key whether you’re building your financial foundation or looking to optimize your strategy. By implementing these expert-backed tips, you can work toward achieving your financial goals, regardless of your starting point.
*Jeannine Mancini has written about personal finance and investment for the past 13 years in a variety of publications, including Zacks, The Nest and eHow. She is not a licensed financial adviser and the content herein is for information purposes only and is not, and does not constitute or intend to constitute, investment advice or any investment service. While Mancini believes that the information contained herein is reliable and derived from reliable sources, there is no representation, warranty or undertaking, stated or implied, as to the accuracy or completeness of the information.
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