Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
I came across this table on the census web site. Table 721 from this census data has breakdowns of the median (and mean) net worth of Americans by age, race, and tenure. In almost every category, there is quite a wide range between the mean (average (sum of all amounts divided by the number of people)) and the median (or middle point where there are equal number of people above and below) net worth. Of interest,
The net worth of Owners: Mean $778.2K , Median $234.2K
The net worth of Renters: Mean $70.6K , Median $5.1K
Only one category, Age of family head 65 to 74 years old, has a mean net worth over $1M.
Yes, this data is from 2007. I couldn't find newer data. It will be interesting to see what 2012 look like.
The folks on the right-hand tail don't seem to stay stagnant from the shape of the graph. If they land there they will eventually move up to the $200k+ bucket.
It is interesting to see how far off the median is from the mean too. The ultra wealthy folks sure do distort the data quite a bit. This is a really good reason to use the median instead of the mean when looking at numbers like this. The data certainly is not normally distributed.
The Mean data doesn't surprise me -- even in large samples, relatively few data points can easily skew the mean.
But, the Median data is crazy! I never would have expected the differences to be that great, and I NEVER EVER would have expected the a median net worth of $200K+ for any large group of Americans, regardless of the sample.
There are a lot more wealthy people in this country than you think. I also find it pretty puzzling that the net worth figures are as high as they are given the incomes cited to get to an equivalent rung on the ladder. This signals to me there are a lot of people with inherited wealth that are horrible at managing it to produce income.
I guess most of the really wealthy people don't invest the way Scott measures things using his index.
Income and net worth distribution is certainly not a normal distribution. A relatively small number of people have very large incomes and net worths. That's why the mean is so much larger than the median.
A median of $120K (from the link) isn't surprising, but it is scary. That means half the people in the US have less than this amount to their name. For many, I suspect a chunk of that is in their residence, which is pretty tough to turn into groceries if you are in financial difficulty. Median for 65 or older is only about $240K. Based on the 4% rule of thumb (you can safely spend about 4% of your nest egg each year), these folks are getting only $9600 a year from their nest eggs, plus social security.
The median numbers broken down by age bracket is mortifying and are surely much lower in 2012 vs 2007 with the decline in sfr values.
Makes you wonder how the average American is ever going to retire and handle their basic expenses. Add in health care expenses and it's clearly not feasible.
The folks on the right-hand tail don't seem to stay stagnant from the shape of the graph. If they land there they will eventually move up to the $200k+ bucket.
For me it is not surprising that people with a high net worth do not always have a high income. That doesn't mean the net worth is not growing it or that income is not being created.
People like Warren Buffet may add a considerable amount of unrealized income to their portfolios every year. They manage their taxable income and let there overall investments grow and take out what they choose.
I run across a lot of people making large incomes that are accumulating some net worth. These same people are often looking for ways to decrease income while continuing to grow net worth.
So far net worth is only taxed at death. So the wealthy will continue to look for ways to grow their wealth without creating taxable income.