Household Income, Net Worth, and What It Means

Often a client would say, "I wonder how the other half live?"  In almost all situations like this, the client was in the top half of the two halves, they just did not realize or believe it.  Following are statistics which I believe every American should consider, understand and incorporate into both their personal long term financial planning and voting in National elections.  

Median Household Income in America
According to 2017 US Census data, the median household income in the US is $61,372.  This means half of the households have more income and half have less.  

Median Household Net Worth in America
According to 2014 US Census data, the median household net worth in the US is $81,850.  This includes equity in the household's own home.  Excluding equity in the own home, the median household net worth is $25,230.   Again this means half of the households have a higher net worth and half less.  

The Difference Between Average and Median
Average is the total number divided by the number of units.  Median is the halfway point between the units.  

  • An easy example is assume there is a very small town in which there are 11 households, one household has income of $1 Million dollars annually, 2 have incomes of $50,000 annually, 3 have incomes of $25,000 annually and the remaining 6 have incomes of $10,000 each.  The average income for the town is over $112,000 annually which sounds pretty good.  The median is $10,000 which is a whole different picture. 

The reality is close to the above example.  In a survey published by Federal Reserve’s Survey of Consumer Finances in 2016, they found the average US household had a net worth of $692,100 while the median net worth was $97,300.

Wealth Distribution
According to a paper presented by economist Edward N Wolff, the top 1% of US households own 40% of US wealth and the top 20% of US households own 90% of US Wealth.  A way of thinking about this if you visited a community with 1,000 households, of all the real estate, businesses, investments, cash, etc in the community, 40% is owned by 10 households and 90% is owned by 200 households.  The remaining 800 households own much less or nothing.  

Cash Savings
The Federal Reserve's Report on the Economic Well-Being of U.S. Households in 2017 stated that about 40% of US households if they need $400 for an unexpected expense could not pay it unless they either borrowed money or sold something.  

Health Care
According to a recent article published by the Kaiser Family Foundation, health spending per person [per capita] in the U.S. was $10,348 in 2016.  

Health care is still the number one cause of bankruptcy in the US and this includes households with health insurance. Health insurance coverage with high deductibles and co-insurance payments along with uncovered medical related expenses which includes the cost of travel to medical facilities can easily still lead to bankruptcy for many households.  

Again, looking at the 2014 US Census data, the median household net worth from age 55-64 is $163,300 with excluding home equity it is $61,390.  For 65 and older, the median household net worth is $198,000 and with excluding home equity it is $53,540.  

What does all the above mean, many things, but any intelligent thoughtful conversation starts with an understanding of the above facts and what they mean for long term economic growth, personal financial security, health care, bankruptcy in the US, and the ability for a large percentage of US households maintain a reasonable level of comfort after retirement.  

*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets.