If your neighbors drive fancy cars or own their own business, does that make them financially successful? Not necessarily.
These are two traits often associated with wealth, but other factors better reflect wealth, or lack thereof.
Wealthier Americans adopt certain financial behaviors, spend their money in certain ways, and favor certain investments. Less well-off people usually don’t.
Some indicators of wealth are obvious. Wealthy Americans tend to be college-educated, earn more, save a lot, and take advantage of tax-sheltered retirement strategies. They also tend to belong to certain racial and age groups.
But other behaviors, spending habits and investment choices might surprise you. A recently updated US Census Bureau report on wealth and the wealth gap, generally reflecting data from 2019, highlights many of these characteristics. Some of these traits can help you build wealth, while others mainly reflect whether you have it.
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University degrees are important
College education is getting more and more expensive, but people with a college education tend to earn more. They also tend to have a higher net worth. Net worth, or wealth, is not the same as income. Net worth equals personal assets minus debts. You might own a $1 million home, but if you owe $1.5 million, your net worth would be negative.
Either way, Americans who haven’t finished high school tend to have the lowest average net worth, essentially living hand-to-mouth with median or median wealth of just $5,090 according to the study from 2019. The numbers increase steadily as people move up the education ladder with high school diplomas ($40,560 in net worth), then some college degrees ($59,700), bachelor’s degrees ($196,800), and finally graduate or professional degrees ($408,700).
A notable divide separates college graduates from people who took college courses but did not complete. These people do not benefit from a diploma, but may have accumulated a lot of student debt.
Marriage pays financial dividends
Married couples should have higher median or median wealth than single people, especially if they bring in two earners. There are economies of scale in marriage in that two spouses can share many expenses. Each person does not need to have their own refrigerator, pool or home insurance policy. And in some cases, they can avoid or minimize costs such as childcare.
Yet the census study found that married couples are not just twice as wealthy, on average, as single people, but much more. Married couples had a median net worth of $269,000 in 2019, compared to $50,160 for single men and $36,600 for single women.
Such differences cannot be explained solely by additional salary. “Otherwise, married households would have no more than twice the median wealth of unmarried households,” the Census Bureau noted.
Other factors are probably also involved. One possibility is that marriage “engenders an ethic of responsibility, where spouses set aside money for an imaginary future together,” wrote W. Bradford Wilcox, professor of sociology at the University of Virginia, in a blog. “This translates into higher per capita saving rates and lower per capita spending rates among married people.”
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Two types of assets are needed
Americans can invest in all sorts of things – stocks, bonds, cryptocurrencies, commodities, real estate and more. But they focus on two key areas: housing and retirement accounts, which together account for 65% of total household net worth.
The median or median amount of home equity (home values minus mortgage balances) was $130,000 in 2019. Median holdings in individual retirement accounts, workplace 401(k) accounts and other s amounted to $69,900. Both numbers have increased since then, but the updates were not reflected in the census report.
Retirement accounts typically hold stocks and mutual funds. Many people also own these investments in non-retirement accounts — worth about $35,100 per household on average — according to the report.
Landlords had a median wealth of $305,000 at the time of the study, compared to a net worth of just $4,084 for those who rented. But even when home equity is subtracted, the median wealth of homeowners of $125,500 was still nearly 31 times that of renters.
“Households that can afford to buy a home are also more likely to have the resources to invest in other wealth-generating assets,” the Census Bureau said. Additionally, renters tend to be younger than homeowners, which means they have had less time to accumulate wealth.
The trade stakes are modest
People who can grow a business over time can sometimes reap huge rewards for their work, but the census study suggests most owners aren’t doing very well.
Business assets do not make up a particularly large share of overall wealth, at about $6,000 in net worth per household, according to the census study. Only about one in six households own business capital.
Small businesses face a range of challenges, including a possible constant need for funding that can deplete an owner’s personal wealth. While 68% of new businesses survive the first two years, only 49% survive five years, according to a 25-year study by the US Small Business Administration.
Small business owners are currently very pessimistic, with their outlook for future conditions at a 48-year low in June, the National Federation of Independent Businesses reported. Inflation, labor shortages and the possibility of tax hikes and additional regulations are weighing on homeowners, said Bill Dunkelberg, the group’s chief economist.
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Bank accounts, cars are not decisive
While most adults have checking or savings accounts at banks or credit unions, they don’t store much of their wealth there. About 95% of households had such accounts at the time of the 2019 study, but they held only about 8% of total wealth.
So, too, for motor vehicles. While most Americans own at least one car or truck, they don’t have much wealth in their possession. Vehicle equity — the value of owned cars and trucks minus car loan balances — accounted for just 2% of overall wealth, or a median of $7,290 per household, according to the report.
Cars and trucks generally lose value over time, which does not help motorists get rich. You can’t always judge a person’s wealth by the vehicle they drive, especially if it’s rented.
Other factors are also at work
The census report looked at wealth gaps in other ways, including demographics.
For example, women generally follow men, while gaps are apparent for racial groups – Asian Americans led the way with a median net worth of $206,400 in 2019, followed by whites ($187,300 ), then Latinos ($31,700) and finally African Americans ($14,100).
Age is another key factor, as wealth generally increases as people age, become more established in their careers, pay off student loans, accumulate home equity, etc.
Baby boomers, who are now between 58 and 76 years old and therefore approaching or are in retirement, are the wealthiest generation, with a median net worth of $240,900 in 2019. Members of Gen Z (adults through at age 25) were only worth $3,080. This is followed by Millennials (26-41) at $27,420 and Gen X (42-57) at $121,400.
Older seniors are somewhat less well-off than baby boomers, with $253,200 in median assets in 2019. Seniors are at ages where they need to dip into savings to meet retirement expenses. According to a study by Fidelity Investments, out-of-pocket medical expenses alone can average $300,000 over the lifetime after age 65 for a typical married couple.
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