Most people today in America are not wealthy, far from it. However, don’t be confused when you learn that the average net worth of an American household is $434,782. 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 Buffet and Gates, for example, highly skews the distribution and thus the average in an upward direction.
The median measure of household net worth paints a much more accurate picture of the character of wealth in America than does the average. The median is that of the typical household, the mid point range of all of the more than 115,000,000 households ranked from bottom to top along the net worth scale.
In 2000, the ratio of the average net worth of an American household to the median figure was 3.3 to 1. Today, the ratio is about 5 to 1. This means that in terms of the distribution of wealth, the wealthier are getting wealthier. But it also means that most Americans live way beyond their means. Today the median net worth of an American household is $91,304. It now costs more than this amount for a one year stay, drugs excluded, in a high grade nursing home. Therefore, less than one half of the households in this country do not have enough to pay for such a service even if they sold everything they owned and worked for.
The $91,304 net worth figure also is indicative of something else. 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.
Does the $2 or $3 trillion stimulus package concern you? Are you worried about our government’s ability to stay solvent? Well, you may really become concerned when you read my forthcoming blog, More Storm Clouds on our Economic Horizon.