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Wealth Statistics: How Do You Measure Up vs. the “Average Wealthy American?”
By Dr. Steve Sjuggerud, President, Investment U
Monday, January 27, 2003: Issue #208
Once again, it’s time to see how YOU measure up. Are you doing things right? Or is it time to make some serious changes? That’s what I’ll address here, as we examine U.S. wealth statistics and the makeup of the “Average Wealthy American.”
Once every three years, we’re treated to the Survey of Consumer Finances, which is put out by the U.S. Federal Reserve (Alan Greenspan’s employer). The latest version just came out last week. I prefer this survey to surveys done by the financial press, as I feel it’s less biased. It’s a fairly exhaustive survey based on interviews with thousands of Americans across all income, wealth, race and regional areas.
This time around, I’m simply defining “wealthy” as being in the top 10% of net worth. (And for you number crunchers, even though I say the “average” wealthy person, I’m actually using the “median” numbers from the survey.)
Let’s take a look at some wealth statistics and see how you measure up to the average wealthy American. As you’re doing so, you should keep in mind two things:
1) Just because some people are wealthy doesn’t mean they’ve done things exactly right.
2) They ARE wealthy, so they’re as good a guide as any to what people have done right.
(Lastly, remember that this is based on interviews, so we may not have the true picture but what else do we have to go on?)
U.S. Wealth Statistics: The Results May Surprise You
The average wealthy American (based on the numbers I crunched) has $1,400,000 in assets, and $275,000 in debts, for a net worth of over $1.1 million. Of those assets, they’re fairly equally split between “financial” assets (stocks, bonds, mutual funds and cash), and “non-financial” assets (real estate, personal business equity, collectibles).
Of the $275,000 in debt, about 80% of it is on properties. (For those of you who still have significant credit card debt, you should know that the Average Wealthy American has less than 1% of his debt on credit cards.)
That’s the basics. Now let’s take a closer look at some of the statistics
Do You Have Too Much In Individual Stocks?
The average wealthy American has 15% of his assets in individual stocks. For better or worse, far more of his money – 40% – is in retirement accounts or mutual funds, where somebody else is managing it. Here’s the exact wealth statistical breakdown of financial assets, which are 50% of the average wealthy American’s total $1,400,000 in assets (note that percentages may not add up to exactly 100% due to rounding):
- 23% – Retirement accounts
- 17% – Mutual funds
- 9% – Cash earning interest (and CDs)
- 11% – Bonds
- 15% – Stocks
- 4% – Life insurance cash value
- 22% – Other (savings bonds, partnerships, etc.)
I find this to be an interesting mix. Among investors I hear from, I find that most are pretty close to this table, with one major exception: most have too little in bonds and bond-type investments. How do you measure up? If you’ve got way too much in individual stocks, or way too little in bonds, you may want to make some changes
Again, remember, that this is not necessarily the “correct” mix. It is simply the mix that an “average” person with a net worth of over a million has chosen.
Your Home… And Your Second Home… And Your Third???
There were many surprises to me in the statistical breakdown of non-financial assets – which include things like homes, jewelry, and cars – basically anything that’s not a piece of paper.
First of all, I was surprised to find that folks with some wealth have more in real estate assets OUTSIDE their primary residences than they nearly they do in their homes. Now of course, there are folks well above and well below this. But this was the median.
It seems like the simple way to define things here is one-third of your non-financial wealth is in your primary home, one-third is in other real estate, and one third is equity in your own business.
The numbers for equity in your own business are particularly dramatic. The numbers really suggest that this is the way significant wealth is generated in America. Here are the specifics of non-financial assets:
Non-Financial Assets:
- 26% – Primary home
- 37% – Equity in own business
- 18% – Second residential property
- 13% – Non-residential property
- 3% – Vehicles
- 5% – Other (jewelry, artwork, antiques, etc.)
One last note: consider the total value of vehicles As a rule, wealthy people don’t drive rich. The median value of the sum of all vehicles they own is just $28,800. The fancy car that depreciates in value will only SLOW your wealth creation. (But of course, it is fun to drive)
What About Debt as It Relates to Wealth?
The median home mortgage is $135,000. The median home value is $350,000. So most wealthy folks apparently have about 2/3s of their mortgage paid off. Wealthy folks have on average an additional $77,000 borrowed for other real estate properties.
The usual killers of the middle class – car loans and credit cards – don’t make a dent in the wealthy person’s debt load. Wealthy folks generally seem to not live above their means. Car loans and credit card balances among the wealthy are almost non-existent.
If you’re dogged by credit cards and car loans, you may be living beyond your means. Or at the very least, you’re not living by the same principles of people who have successfully generated wealth. They don’t drive rich. And they don’t sit on high interest credit card balances.
Other Interesting Facts About The Average Wealthy American…
The self-employed are the wealthy folks of America. The average net worth of a family where the head of a household works for someone else is $65,000. When it comes to the self-employed, the average net worth is $352,300.
Another interesting wealth statistic: all the wealth in America is concentrated among homeowners (two-thirds of Americans own their own homes). The difference is stunning. The average homeowner’s net worth is $171,700, while the average renter’s net worth is a measly $4,800.
Lastly, it turns out that education is valuable. The net worth where the family head didn’t graduate from high school is only $25,500. Meanwhile, the net worth where the family head has a college degree is $213,300. (Grad. school was not part of the survey.) An investment in a college education could provide a return greater than you could even expect in the stock market!
So what – if anything – should you do with all the figures and statistics I’ve given you about the Average Wealthy American? Well, first, you should take a look at your assets and see how you stack up. Now is as good a time as any to roll up your sleeves and examine your own financial picture.
I urge you to take this opportunity to see just how you stack up. It may be an eye-opening experience or you may be pleasantly surprised. But don’t be afraid to make those difficult decisions if you need to.
When the next Survey of Consumer Finances comes out in 2006, I trust you’ll find yourself above the median in all categories except debt as you follow the Investment U e-Letter right?
Good investing,
Steve
Today’s IU Crib Sheet
- While it’s true there is no “magic formula” that works for everyone it’s also clear that those who have wealth in the U.S. spend more time on asset allocation than you might think. The average wealthy American also does not live beyond his means, which means NO credit card debt – and passing on that expensive sports car.
- There’s a significant lesson to be learned from the way wealthy Americans handle their debt. You may recall that this is a topic we recently addressed in the IU E-Letter for more information on just how much your debt is COSTING you, see IUEL # 202: Where to Put $10,000 Now.
- Forget Market’s Fear, Follow MSFT
- What is Toxic Debt and How Much is There?
- Home Ownership: How to “Buy on Fear” in Real Estate
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3 Responses to “Wealth Statistics: How Do You Measure Up vs. the “Average Wealthy American?””
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September 15th, 2009 at 8:45 pm
I define the wealthiest Americans as the top 1% net worth, regardless of age and income. BUT I am unable to find a source for the statistics, that is, how much net worth must you have to cross the 1% boundary? Can you help?
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October 16th, 2009 at 4:02 pm
SO, how come the Investment U staff are unable to provide the answer to my question, especially for the recent years such as 2007 or 2008. Afterall they wrote the article on the wealthiest 1% but provide no answer. Preculiar.
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admin Reply:
October 16th, 2009 at 4:20 pm
Paul,
We must have missed your question from Sept 15th, but your most recent inquiry will be sent up to our research team/editors and they should have an answer for you next week.
Thank you,
Investment U
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