You read that right; The average American family is now worth over $1 million. The average net worth, to be specific, is $1.06 million. 2022 Consumer Finance Survey. This is a survey of U.S. families that the Federal Reserve Board conducts every three years. Net worth, meanwhile, is a measure of total wealth (the value of all your assets minus your debt).
This figure probably seems hard to believe, or you may be wondering how many of your friends and family are secretly millionaires. While the numbers are legible, they are a bit misleading in this case.
Net worth of the average family
To clarify, the average net worth of families in the United States is $1.06 million. Their average net worth is $192,900. Here’s a quick explanation of the difference:
- The average is calculated by adding up each family’s net worth and then dividing by the number of families. Mathematically it is average.
- The median is the middle number in a data set. In this case, the net wealth of each family is found by listing them from smallest to largest and taking the middle value.
The problem with averaging is that if there are large outliers, they can skew the data. In such a case, the average does not accurately represent the average of the group. This is the case here. While the average is over $1 million, only the top 25% have net worth that high. The average net worth of people in the top 10 percent is $7.81 millionSo, they do most of the heavy lifting, so to speak.
The median of $192,900 is a more accurate representation of the average family’s net worth. It is also worth noting that age and income also play an important role. Older Americans have higher average net worth because they have had more time to accumulate wealth. And a big salary makes saving and investing much easier.
Ideally, your net worth will increase over time. This likely won’t always be the case, as everyone’s net worth fluctuates. Home and stock prices go up and down, and for most people they are the most valuable assets. But it’s good to make increasing your net worth one of your personal finance goals. Now let’s see how you can do this.
How can you build your net worth?
The good news is that increasing your net worth is not complicated. This doesn’t mean it’s easy. It takes discipline and consistently following a few good financial habits:
Don’t get into expensive debt. Credit card debt is one of the biggest wealth killers. It’s smart to use quality credit cards; It has many potential benefits, including rewards and boosting your credit score. However, make sure you pay the full bill every month to avoid paying high interest.
Set aside money for savings and investments. For your net worth to increase, you need to spend less than you earn. Allocate a percentage of your income each month to increase your savings and investments. A good starting point is 10% or 20%, but whatever works for you. The important thing is that you put things aside.
Invest in the stock market. The stock market has historically been one of the best ways to create wealth. The S&P 500 (an index of the 500 largest publicly traded companies on U.S. exchanges) returned an average of 10% annually until decades ago. If you’re not sure where to invest, index funds are a popular choice. These invest in a specific market index, such as the S&P 500 mentioned above, and are available at all the top stock brokers.
It takes time to build your net worth unless you win the Powerball. While it won’t happen overnight, it will pay off big time if you follow these habits.
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