Recently, a report was released from the federal Survey of Consumer Finances that stated that the average US household with adults around 50 years old had an average net worth of one million dollars.
Last week, the statistic was mentioned on Saturday Night Live and I began to get messages from people who were upset about it. We need to clear the air a bit on this topic. Hence this post.
By year end 2022, the median net worth of American households was $192,900. Please note that figure was MEDIAN, not average.
For households with people in their late 30’s, the average net worth figure was close to $500,000 and, those in their late 40’s, $750,000. And, for families with household heads in their fifties, it was resting at $1million.
Now, while being a millionaire was a dream for many it is really a psychological yardstick and a somewhat meaningless statistic in 2024. A Californian who once called on me as sales rep admitted that his house alone was valued at $1.5 million but he still worries about paying his car insurance and keeping his job. He is, on paper, a millionaire but hardly feels affluent.
The study also stated that approximately 18% of US households had a net worth of over $1millon. Using a back of the envelope calculation with record high stock and real estate prices as I type, I peg 23% as the working figure for current US households with the million dollar plus net worth handle.
Think about it for a minute. What does a million dollars mean? It buys you a studio apartment in a decent neighborhood in Manhattan. Most Americans still have a high percentage of their net worth in their homes. They are not that liquid. If you had a million in cash you could put it in CD’s at current interest rates and earn $50-55k a year. Hardly enough to qualify for what for decades we have considered a millionaire lifestyle.
What irks me about this report is not that it is inaccurate. It is probably very close to reality. The problem gets back to my old pet peeve about how the press and most individuals continue to use median and average interchangeably.
Let us repeat the lesson that I have mentioned now and then in previous posts. Here are two key points:
1) A person can drown in a river with an average depth of six inches. If you had a reasonably good statistics professor, the lecturer would have used this homely analogy to stress the weakness of average as a statistical benchmark.
2) Let us repeat one more time the popular but effective joke showing how averages do not reflect reality—Bill Gates walks into a rural bar with 29 people in it. Let us assume that Mr. Gates has a net worth of $100 billion. The AVERAGE net worth of the people in that bar now sits at 3.3 billion dollars (100 divided by 30). But the more meaningful number is the median net worth (the 50th percentile with approximately half you sample over and the other half below the median) is $80,000.
Is point #2 an exaggeration? Of course. Yet it is what is happening in America today where a relative handful of people of extreme wealth are pulling up average numbers. The wealthiest 1% now have more net worth than the entire American middle class. Wealth skews are getting so sharp that we are beginning to look like many developing countries in terms of net worth distributions.
Here are a few comments from people whom I heard from or polled:
--"I worked hard for 30 years and on paper I am a millionaire. But, I don’t feel financially secure. A replay of 2008 would cut me back quite a bit. I still worry about losing my job, getting my kids through college, and saving for retirement. As you wrote in a post a few months ago, a million bucks is not what it used to be.”
--"When my wife showed me the news headline, I felt as if I was a total failure. Finally, she has stopped telling me that we are below average.”
--“This looks good and feels good, but we are in a tech stock bubble and real estate bubble. When one or both burst someday, people will get their comeuppance. No, we are not millionaires.”
--“I guess it is a milestone of sorts. I just keep flailing away at work. As a young adult, a million was my goal. It feels hollow and is not at all soothing. We are nowhere near the 1%.”
My advice is do not let the average figure get you down. If you are worth more than a million, great, but depending on where you live, life could still be a struggle given high taxes or cost of living or perhaps the majority of your net worth is tied up in your primary residence so everyday expenses are still a burden. If you are below a million, remember that median net worth for people in their fifties was about $300,000 in this study ($272.8k for 50-54 and $320.7k for 55-59).
Schools do a rotten job of explaining the difference between average and median. The media does not help. Thanks for reading my rant.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.
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