If The Average American Household Is A Millionaire With A Net Worth Of $1.06 Million, Why Do People Feel So Broke?

The Federal Reserve’s 2022 consumer finance survey unveils a striking picture of American prosperity. The mean net worth of the average household has ascended to $1.06 million, up 23% from $868,000 in 2019. This statistic, while impressive, masks a more nuanced and unequal economic landscape.

Despite American households’ seemingly thriving financial status, the reality is more complex, particularly for the middle class. Between 2019 and 2022, real median family income modestly grew by 3%, while real mean family income saw a more significant 15% increase. These gains were predominantly enjoyed by the higher income brackets, amplifying existing income inequalities.

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The period witnessed a 37% surge in real median net worth and a 23% rise in real mean net worth, marking the largest three-year increase in the modern Survey of Consumer Finances history. Yet, this aggregate growth masks the unequal distribution of wealth gains. Homeownership, often a key component of net worth, rose slightly to 66.1%, with the median net housing value jumping from $139,100 in 2019 to $201,000 in 2022. The growth in housing values contributed significantly to net worth increases and exacerbated housing affordability issues, as median home values soared to more than 4.6 times the median family income.

Inequality is further highlighted in retirement plan participation and stock market investments. While over two-thirds of working-age families participated in retirement plans, the increases in account balances were mainly seen in families in the upper half of the income distribution. Similarly, stock market participation grew across all income groups, but the gains were substantially higher for those between the 50th and 90th percentiles.

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The top 1% of American households hold 30% of U.S. wealth – a massive $44.6 trillion. 

Wealth inequality becomes starkly evident when comparing asset distribution across income quintiles. The top 20% of income earners in the United States held approximately 71% of the nation’s wealth, while the bottom 50% of earners owned only about 2.5% of total U.S. wealth as of early 2024. 

The greatest asset disparity lies in stocks and mutual fund shares, where the top 1% has more in these investments than the rest of the top 20% combined. This disparity continues down the income quintiles, with the middle class having significantly less stock wealth.

Mortgage debt burdens the middle class the most. For the middle 60% of earners, mortgage debt represents a larger percentage of their net worth than the top 1%. This burden reflects the challenges the middle class faces in growing their wealth relative to higher earners.

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Inflation and other economic pressures have led 64% of Americans to live paycheck to paycheck, struggling to cover day-to-day expenses. Many households cannot cover a $400 unexpected expense, highlighting the lack of emergency funds for unforeseen circumstances.

Economic uncertainty has contributed to the continuous growth of consumer debt, which is placing financial strain on many Americans. 

The average length of car loans has also increased, indicating that Americans take longer to pay off vehicle purchases, adding to their financial burdens. In earlier decades, car loans typically had shorter terms, ranging from 36 to 60 months. Over time, there has been a shift toward longer loan terms, such as 72 months or even longer. 

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When combined with the skewed distribution of wealth and income highlighted in the Federal Reserve’s data, these factors explain why many Americans may not feel the prosperity suggested by the average household net worth figure. 

It's also worth noting why many people don't feel as wealthy as the numbers suggest. While the average net worth in America is over $1 million, the median net worth is $192,900 – providing a more realistic picture. The median is a better measure because it represents the middle point, meaning half of households have more and half have less. This number gives a clearer view of what most people are experiencing, as a few wealthy individuals can skew the average.

This growing gap between perceived wealth and financial reality highlights the value of financial advisers, especially for those earning between $150,000 and $250,000 a year. Often considered newly affluent, this group may not always seek financial guidance. However, advisers can offer key insights to help manage immediate financial challenges and plan for future growth, ensuring that their financial strategies align with their current and long-term goals.

Some elements of this story were previously reported by Benzinga and it has been updated.

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