Monday, September 20, 2021

Wealth Quartiles, and Who Is Rich, Anyway?

The other day, a question came up on my Twitter feed. Do you consider yourself rich?

I like this sort of question. Ideally, it inspires a little introspection and gets me to step back and get some perspective. Do I understand where we stand financially? Do I appreciate how lucky we are?

To get that perspective, it helps to understand what kind of money the average family has. We've written a lot about average incomes and income quintiles with this in mind.

But income is only part of the story. And when it comes to asking whether someone is rich, income isn't really what we're after. Lots of people have good incomes but not a lot of wealth. And the wealthy love reducing their income on paper. So it's not like there's always a strong correlation between the two.

To make things worse, finding good data on wealth seems a good bit harder than income data, at least for this English major. Thankfully, the Federal Reserve conducts a Survey of Consumer Finances every three years, which collects information on family income and net worth.

So what did the median household have as a net worth in 2019? 

Source: 2019 Survey of Consumer Finances

  • Here we can see that the lowest quartile barely has a positive net worth at all. The median net worth of this group, which represents a full quarter of US households, was barely over three hundred dollars in 2019. And this was before the pandemic hit.
  • The median household in the country is doing better with a net worth of $121,547. However, since this includes equity in primary residences as well as all other assets, the average family isn't rolling in it, either.
  • Even the net worth of households between the 75th and 90th percentiles seemed lower than what I was expecting: the median net worth from this group was only $654,063.
  • Somewhat unsurprisingly, the people we might consider truly rich are in the top ten percent of US households. Their median net worth was $2.6 million. 

Is this top ten percent what people mean when we say 'the rich'? Sure. I think this kind of wealth certainly qualifies.

There are other interesting findings. The survey breaks down median net worth broken down by age:

This is how the survey data breaks down by education:

And perhaps most interestingly, the survey also broke down net worth by race or ethnicity. (Though not including Asian as a survey option is an odd omission.)

The data was eye opening for me. We have considered ourselves rich for some time, but taking a look at what the median household, or even the households in the 75-90th percentiles average, is humbling.

Of course, the word rich comes with some connotations. While, increasingly, more of us want to be rich, somewhat ironically, people who would almost universally be considered rich don't actually see themselves that way. From David Callahan:

" recent survey found that 'Of those with investable assets worth $1 million to $5 million, only 28% answered yes to the question 'Do you consider yourself wealthy?'" 

Can this mismatch come from the wealthy simply not understanding how much more they have than everyone else? 

Maybe. I was surprised to see the difference between our household and the median household, or the average household of someone our age. Why couldn't someone else be surprised, too?

Still, I think there's something else in the mix. Most millionaires are not born with that kind of money. They spent most of their lives not being rich. They still remember the shared apartments and clunker cars of their youth. They have money now, sure, but deep down they might feel like the middle class or working class guy or gal they were decades earlier. 

Does money change us? Can we still be Jenny from the block?

Sure. That's rich.

*Photo is from ToGa Wanderings at Flickr Creative Commons.

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  1. I appreciated your supplying the numbers to my ruminations on the matter :)

    "Can this mismatch come from the wealthy simply not understanding how much more they have than everyone else?"

    I didn't know how we compare in absolute terms before reading this but I do know what life is like and what incomes are like for people making a whole lot less. I used to make $6 an hour, I remember trying to pay the bills on that hourly wage and the struggle. It's easy to forget the vast gulf between $6/hr and $60/hr if you didn't live it, I guess.

    1. Thanks! The numbers are always eye opening for me and I think that's the place I want to evaluate class from: data on what people actually earn and have, rather than feelings about what we think middle class or rich means personally. The latter is what gets people to make ridiculous claims, IMO.

      And yes, people can easily forget what it's like to earn on very little.

      Or, worse, they do struggle for a while but take an absurd lesson from it (i.e. - I used to earn minimum wage but now earn nearly half a million a year, so anyone can do it).

  2. Recently, I changed my mind. These days, I feel that we're wealthy. Previously, I'd say we're comfortable. The big difference is that I got to know more regular families. They have a lot more problems than we do and their financial struggle is real. We are extremely lucky to live so comfortably.