Well folks, after writing over 2,300 personal finance articles since 2009, my job here at Financial Samurai is done! According to the 2022 Federal Reserve Consumer Finance Survey, the average American household’s net worth, adjusted for inflation, was $1.06 million. That’s right. The average American household, some of which consists of individuals, is a millionaire!
In comparison, in 2019 the average net worth of an average American household was only $868,000, a 23% increase. Even though a bear market wiped away about 20% of public shareholder wealth in 2022, we clawed a lot of our way back in 2023.
Preserving Our Millionaire Status
Given the average American household is now a millionaire, all that’s left is figuring out how to preserve our millionaire status so that we never have to work in the salt mines again!
Thanks to higher interest rates, one way is to convert the entire $1.06 million into 30-year Treasury bonds yielding 5%. Earning $50,000+ a year risk-free without having to pay any state income taxes is a pretty good deal. We can thank the Federal Reserve for providing the average American such good fortune.
No longer do we have to worry as much about our finances and grind as hard. The anxiety we feel for our children’s futures and for ourselves should decline with such high risk-free rates.
Over the years, I’ve discovered the benefit of having money is not about being able to buy stuff. Having money is more about stress relief, to know that whatever difficulties life throws at you, things will be OK.
Unfortunately, Not Everyone Is An Average American
Do you want to be average? Or do you want to be above average?
I would think that most of you would rather be above average to outperform the masses. Unfortunately, most people are not above average by definition.
Further, the more appropriate metric to measure the typical American’s net worth is using the median.
According to the 2022 Federal Reserve Consumer Finance Survey, the median American household net worth was only $192,900. $192,900 is still a great net worth figure and is 37% higher than it was in 2019. However, it is 80%+ lower than the average American household net worth of $1.06 million.
The reason why the average American household net worth is 467% higher than the median American household net worth is due to the top 10% richest Americans.
The top 10% wealthiest American households have an average net worth of $6.63 million, according to the Fed. Meanwhile, households in the bottom 10% had a mean net worth of $5,300 in 2022. If we remove the top 10% and the bottom 10%, we come up with an average household net worth closer to $500,000.
The average net worth is calculated by adding up the net worths of all American households and then dividing by the number of households. The median net worth is calculated by finding the middle net worth of all net worths in a dataset.
Main Reasons For The Boost In The Average American’s Net Worth
According to the Changes in U.S. Family Finances from 1999 – 2022 report, here are the main reasons why the average American got much richer.
Strong Housing Market
“For families that owned a home, the median net housing value (the value of a home minus homesecured debt) rose from $139,100 in 2019 to $201,000 in 2022. Meanwhile, the homeownership rate increased slightly to 66.1%.”
I continue to believe real estate is the best way for the average American to build wealth. The U.S. government is a strong proponent of homeownership. Meanwhile, real estate tends to ride the almost unstoppable inflation wave long term.
Renting is fine short-term, especially if you don’t know if you want to live in a particular area for longer than five years. But over the long-term, it is unwise to rent because it is unwise to go against inflation and the U.S. government.
The forced savings creates disciplined wealth, especially for those who do not have the discipline to save and invest the difference. Over a 10-year period, the home equity realy starts to build.
As soon as you know where you want to live for five years or longer, I would get neutral real estate by buying your primary residence. As you replenish your funds, I would then buy a rental property to get long real estate.
You can also invest in private real estate funds and deals if you want 100% passive real estate exposure. After I reached my limit of managing four rental properties, I decided to invest in private real estate in the Sunbelt. This way, I could diversify my real estate portfolio and minimize headaches.
Increased Participation In Retirement Plans
“Just over two-thirds of working-age families participated in retirement plans in 2022, up…
Read More: The Average American Household Is A Millionaire, Go USA!