What’s your
net worth, and how do you compare to others? By Dayana Yochim, 1/29/19.
Home value, job title, car model, savings account balance. These things
merely hint at how wealthy you or your neighbors are. The naked financial truth
comes down to just one number: net worth.
Net worth is the total
of what you own minus what you owe.
It’s a mathematical reckoning of assets accumulated (including cars, homes,
Roth IRAs and that dish of loose change on the dresser) and debts accrued (such
as mortgages, auto loans, student loan debt and credit card IOUs). And the
average net worth is …
A household in the U.S.
has an average net worth of $692,100, according to the most recent data from
the Federal Reserve’s Survey of Consumer Finances.
Shocked by that figure?
That’s because the average (aka the “mean”) is skewed by the nation’s
super wealthy. The median net worth of the average U.S. household is $97,300.
Median is the middle point where half the households have more and half have
less.
That means the median
figure may be a better indicator of where you stand relative to your friends
and neighbors. But the overall figures are just one indicator. There are many
other ways to slice net worth figures published in the 2016 survey. Let’s
start with age:
Median and average net worth by
age
Under 35: Median net worth: $11,100
(average net worth: $76,200).
35-44: $59,800
($288,700).
45-54: $124,200
($727,500).
55-64: $187,300
($1,167,400).
65-74: $224,100
($1,066,000).
75+: $264,800
($1,067,000).
The Fed conducts the
survey every three years. Looking at how families fared from early
2013 to early 2016 based on the educational attainment of the head of
household,
Americans without a
college degree experienced the largest gains in median net worth (up anywhere
from 24% to 29%). During that same period, the median net worth of families
headed by someone with a college degree increased just 2%.
Median and average net worth by
education
No high school diploma: Median net worth:
$22,800 (average net worth: $157,200).
High school diploma: $67,100
($249,600).
Some college: $66,100
($340,600).
College degree: $292,100
($1,511,100).
Other noteworthy changes
in net worth from 2013 to 2016:
The median net worth of homeowners ($231,400)
increased 15%.
Renters or other non-homeowners saw their
median net worth fall 5% to $5,200.
The net worth of nonurban households grew to a
median of $87,900 from $70,100 in 2013, while city dwellers padded their median
net worth by 13% (up about $12,000 to $99,000).
That was a fun exercise,
right? But …Does net worth really matter? Yes, but only as a treetop view of your
overall financial picture. A bunch of other data points, some of
which determine your net worth, give
you more telling and actionable information. Some key numbers to know are:
Your credit score tells lenders (and others, like
landlords and insurers) how well you handle borrowed money. It changes based on
whether you make payments on time and stay within your credit limits, in
addition to several other factors.
Your debt-to-income ratio (DTI) tells how financially
stretched you are. It’s a measurement of how much of your monthly income goes
to cover debt and other must-pay expenses, such as your rent or mortgage,
credit card, student loan, alimony and other payment obligations. Divide the
total of those by your gross monthly income (or use a debt-to-income
ratio calculator).
This number is
important when you’re applying for a loan. Most lenders set their own
debt-to-income ratio requirement. In general, a DTI of 20% or less is
considered low. Mortgage lenders like the number to be less than 36%, but may
go higher in certain cases, depending on other factors, such as your
credit score. A DTI of 50% or more indicates financial stress.
Your retirement savings score reveals what kind of lifestyle
you’ll be able to live in the future based on your current age, salary and
retirement savings (how much money you’ve got in your workplace plan and any
individual retirement accounts, or IRAs).
Get a snapshot of where
you stand with a retirement savings calculator, which
shows you how close you are, as a percentage, to a savings goal that will
sustain the retirement you want. You can play with the numbers saving a few
hundred dollars more a month; retiring early; working part time — to see how
different factors affect how much money you’ll have to spend each month.
While it’s interesting to
calculate your net worth, having a handle on these other financial measures is
what really matters when making day-to-day and big-dollar money decisions.
Norb Leahy, Dunwoody
GA Tea Party Leader
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