The Financial Mirage
Today, so many of us judge success by our job, income, and material belongings, not net worth. After all, it’s the most visible way to do so. In the social media era, we all know that constant comparisons to others are almost always toxic to your well-being.
To ease your mind, it’s important to understand that these visual cues – whether it’s a person’s physique, personality, or wealthy lifestyle – are extremely misleading. Financially, this is because most people don’t have a great understanding of the concept of net worth, and unlike flashy toys, a person’s net worth is almost never broadcast to the public.
For example, you may see a friend or former classmate driving a $35,000 Mercedes and think “she’s doing really well for herself already.” And while that may very well be true, there’s also a chance that she owes $25,000 of debt on that car, which also already lost 10% of its value in the first month after driving it off of the lot.
Instead of the symbol to the world that she’s worth $35,000, the car may only actually contribute $6,500 to her net worth. Don’t fall into this same trap!
Net Worth: Getting Started
As mentioned in our first ever post, the best way to measure how you’re doing is to track your net worth. And while it’s so easy for us to focus on our salary and what car we drive, the vast majority of adults (especially young adults) have no idea how to begin or keep track of what they’re worth.
Understanding and tracking your net worth is one of the most simple, impactful, and fun (yes, fun!) financial decisions a couple can make.
First, some basic definitions:
Net Worth: Your assets less your debt, which is a measure of your financial health.
Assets: Everything you own. Represents items of value.
Common Assets: Checking and savings accounts, current market value of investments (non-retirement and retirement), cars, house, personal property, etc.
Debts: Everything you owe.
Common Debts: Student loans, mortgages, auto loans, credit card debt, etc.
Average Net Worth: Tip
Tip: When it comes to calculating your net worth, personal property could represent a never-ending and impossible list. There’s no need to try to be perfect here and count every paper clip and hair tie you own. If you have a few very valuable items (e.g., engagement ring), you can list these out separately. Otherwise, make a rough estimate of what you think the rest of your property is worth.
From couples who have used our free tools to track their net worth and goals, we consistently hear how eye-opening it can be to lay everything out with their partner. We also hear how rewarding it can be to see their collective net worth keep climbing and goals being realized.
These days, it’s extremely common for young adults to enter relationships with a significant amount of debt – typically from student and auto loans. If that applies to you or your partner, you shouldn’t be embarrassed.
As a team, you can work on paying it off as fast as possible. Debt doesn’t kill relationships, but not being upfront with each other about the debt you each have, does.
Calculating your net worth will give you both peace of mind that nothing is hidden within the relationship and that you’re taking the first steps toward a wealthy and fulfilling life together.
Average and Median Net Worth in the U.S. by Age
We’re all human. So while comparing yourself to others is not a healthy or recommended practice, we understand you still want to gauge how you and your partner stack up as you start tracking your net worth and continue to make progress.
Before sharing some of the stats, it’s important to understand that every couple’s situation and starting point is different. For example, net worth figures can vary significantly by education level achieved (high school diploma, college education, etc.). As such, it’s always best to measure your net worth progress against yesterday’s self.
With that said, every three years the Federal Reserve Board conducts a Survey of Consumer Finances which highlights the average and median net worth for families. The most recent survey was done in 2016.
Based on the survey, the average net worth by age, and regardless of education, was the following:
Less than 35 years old: Average net worth of $76,200; median net worth of $11,100
35 – 44 years old: Average net worth of $288,700; median net worth of $59,800
45 – 54 years old: Average net worth of $727,500; median net worth of $124,200
Given the significant gap between the average and median net worth, it’s clear a small subset of high net worth families drove the average much higher.
Average Net Worth Increases With Age
Also, at first glance, it may be shocking to see how much the average net worth increases by age. This is caused by the significant amount of student debt for young adults, the limited home ownership, and the lack of time for their retirement contributions to grow and compound.
While the averages are much lower for families under the age of 35, it doesn’t mean young couples should take it easy right now. Financially, these early years represent the most important period in a couple’s life.
It’s in these years where you’ll solidify the best financial habits, have some of the most significant financial events (getting married, buying a house, having children), and be able to truly leverage the magic of compounding interest.
The financial habits you create and the decisions you make today will allow you and your partner to seize opportunities in the coming years, rather than paying for the opportunities you missed.
So what are you waiting for? Start today!
Were you familiar with the concept of net worth before this post? How did the averages by age compare to your expectations? Comment below and let us know!