On the one hand, the average American household is worth about $440,000.
On the other hand, it is worth about $95,000.
Which hand should we use to make accurate assessments? Sadly, the second hand. Call it “second-hand living.”
The first average is the mean: total household wealth divided by the number of households. The more uneven the distribution of wealth, the larger the average. The rich people pull up the number. The richer they are, the harder they pull.
The second average is the median: the wealth owned by the family right in the middle. Half the households have more wealth; half have less.
An article by the co-author of the great book, The Millionaire Next Door, has commented on the difference, based on 2009’s figures. Let’s use the $440,000 figure of today.
You may be thinking that even if an average American worker loses his job he will be able to live off of his wealth for five maybe even 10 years. However, there is a major problem with this wealth figure. When it comes to expressing the net worth/wealth of a household the average figure is very misleading. The presence of high net worth households, billionaires like Buffett and Gates, for example, highly skews the distribution and thus the average in an upward direction.
But the household in the middle does not have $440,000. It has maybe $95,000. (Note: most of this is the value of the equity in their homes, which cannot be tapped in a crisis.)
At $95,000, the picture is very different. “The typical American worker who becomes unemployed today has only about two years of wealth to live on before he hits economic ground zero.”
Yes, we are a rich nation overall if you believe in averages. But averages do not send children or grandchildren to college or pay for a year or two stay in a nursing home. Could it be that we are not the wealthy nation that we think we are? Certainly the median net worth figure helps answer this question. Most American households are nowhere near being financially independent. Nor will most be able to retire in comfort. Yet there is more bad news. What if the equity in homes and motor vehicles is factored out of the median net worth figure? Then the median figure is about $34,000 or about 2/3 of the annual median income generated by a typical American household today. Who will care for these people when they are no longer able to support themselves? Don’t bet on your government. In the not so distant future, it is likely that you will only be able to rely on yourself and your loved ones. You must take it upon yourself to spend less and save more. Survival, like charity, begins at home.
Think about your own retirement. Think about your medical costs if Medicare is busted. (If!!!!)
Think about your widow.