Blame it on social media, human nature, or whatever you want, but when it comes to sticking our noses in other people’s business, there’s perhaps nothing more intriguing than comparing finances.
Admit it — you’re just itching to know how much money your neighbor with the brand-new sports car makes. And you’re probably wondering how your savings account balance compares to the amount of money your friends have in the bank.
But while it may be somewhat difficult to figure out how wealthy your neighbors or friends are, it’s actually not so difficult to find out the average net worth among U.S. households. That’s because the Federal Reserve collects that data every few years and makes it available to the public. And as of 2022, the average U.S. household’s net worth was a pretty impressive $1,063,700.
But that number definitely doesn’t tell the whole story. So don’t panic if your personal net worth isn’t anywhere close.
What’s net worth, anyway?
If you’re not sure what the term “net worth” actually means, don’t sweat it. It’s just a fancy way of saying what your total assets amount to once your debts are subtracted.
As a very basic example, if you have $40,000 in a savings account and own a home worth $500,000, your total assets equal $540,000. If you owe $300,000 on your mortgage, we subtract that amount to arrive at a net worth of $240,000.
You may be doing some quick calculations and thinking, “Welp, my net worth is nowhere close to $1,063,700.” But actually, most households have a much lower net worth than that.
Now you’re probably wondering how that can be if we just learned that the average household’s net worth is over $1 million. But what you also need to know is that as of 2022, the median net worth among U.S. households was just $192,900.
And in case you slept through Statistics 101, when you have a median that’s way lower than an average, it indicates that the median is the more representative number to go by. In the case of these numbers, what’s happening is that a small percentage of very wealthy households are driving up the average net worth. But it doesn’t mean the typical American has more than $1 million in assets after taking their debts into account.
How to grow your net worth
While you don’t have to stress about growing your net worth to $1,063,700, you should have the goal of seeing your own net worth grow over time. And there are some basic strategies you can use to achieve that goal.
First, aim to keep debts to a minimum — especially high-interest debt, like that held on credit cards. The more you borrow, the more it takes away from your net worth. And also, the more money you spend on interest, the less you get to save and invest.
Next, save and invest. Keep enough money in a savings account so you’re covered for emergency expenses. Then, invest money you’re earmarked for long-term goals, like retirement.
Over the past 50 years, the S&P 500 has rewarded investors with an average annual 10% return, accounting for good years and bad. A $10,000 investment in a fund that tracks the S&P 500 today could be worth around $450,000 in 40 years, assuming that 10% yearly return. Click here for a list of the best brokerage accounts to start your investing journey ASAP.
You should also know that because home values have a tendency to increase over time, buying a home instead of renting could be another efficient way to grow your net worth. But only do this if you actually have the desire to own a home. If not, keep renting, but invest the money you aren’t spending on expenses like maintenance and repairs.
If you’re surprised to see that the average American household’s net worth is $1,063,700, you’re surely not alone. But recognize that this net worth isn’t actually typical. And know that with the right strategy, you might one day join the ranks of people whose net worth tops the $1 million mark.
