The Millionaire Next Door

Average Rich or Median Poor?

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.

17 thoughts on “Average Rich or Median Poor?”

  1. Short, sweet, and layman friendly. The government will HAVE to tax the middle class. There simply is not enough money to get from households making over $250,000 per year.

    Soooo, what do you think is the percentage of US households that make over $250k?

    30%? 20%? …maybe only 15%? hahahaha! You wish! According to the 2005 US Census Bureau, a mere 1.5% (not 15%..1point5%) of ALL US households make over $250,000 per year.

    Find the numbers here:

    Oh, and best of luck taxing those folks. They are so CPA’ed up and sheltered, Billy the crack-head pays more in taxes then them. 😉

    My advise: Keep your head down, bust your a$$ at work, thank your boss, pay off your debt (yes, a mortgage is debt) and STOP SPENDING!!!! Only those people will survive.

    Oh, and hand-write your government… attend townhalls… listen to your representative’s *real* answers b/c “I won’t support a bill that…” is NOT the same as “I won’t vote on a bill that…” Keep asking the same question if you get a “spin answer”…blame yourself for not quite understanding his/her answer until you get a committed answer…

  2. I like the comment from TonyT about Entitlement.

    Do you know the difference in Rich and Wealthy?
    Shaq O’Neal is Rich.
    The man who writes his check is wealthy.

    I’d settle for Not Too Shabby, right about now.
    With my “retirement” predictions tied up in Real Estate, my net worth went from a little over 5million to about 20% of that, and it is not liquid even after all that.
    I’m basically screwed, stewed, tattooed, and out to lunch.

    You cannot spend what you don’t have, if you get rid of all your credit cards, and pay cash for everything.

    At least until the Obama-nazis take over the banks, declare currency dead, issue plastic cards and make us all have a barcode on our wrist, they can tax every transaction, and know where we are at all times, and it will kill the underground economy.
    THEN, we will have riots, and god knows what else.
    I only hope the republicans can make some changes in 2012 or we are all in BIG trouble.

    Rich Allen

  3. I disagree that people that make over 250K are CPA’d up. We make 300K and I have no house payment so I don’t get the mortgage deduction. We have to give money to charity to get over the standard deduction. The notion that rich have a swiss bank account and hid money is stupid. Maybe the ultra rich have tax shelters and real estate to get deductions, but the average person doesn’t have the time to try and avoid taxes. We pay more in taxes than most people make in a year.

    1. You are living the American dream. Debt free is the way to be no matter what your income is. I’m debt free and living below my income and like no one else so later I can live like no one else. While my neighbors have mortgages or refinancing their houses close to retirement I just shake my head.

    2. Same here. Last year, I paid over 60k in taxes across fed, state, local, property, etc.
      Any CPAs are welcome to contact me to help.

  4. Chris, how do you “optimize” a tea bag? Career at Nestle? Rich Allen, why wait until 2012? If enough non welfare recipients get out next year we can change congress, and disrupt the happy little socialist coup going on in DC. Between the Capital and White House, we need our national unemployment to rise by another 537. (Anyone else feel like we’re at the scene in the movie where the hijackers are starting to off all the hostages, and you’re wondering if a hero will arrive to stop them before they blow up the building – yes, I was listening to the news from DC! How could you tell?)

  5. We are a wealthy country. Go anywhere else, and it will become apparent. Most foreigners live in small apartments, without big screen tvs, get by on public transportation, and work twice the hours. America’s median poor is still far wealthier than the rest of the world.

    The problem is we are spending too much.

  6. We need a government that has the guts to protect our industries, seal the borders to illegal entry, and fund real financial education in grade school. It doesn’t take a brain surgeon to realize a cute pair of shoes shouldn’t take five years to pay off (or more, with minimum payments and a nasty interest rate).
    We have druggies on welfare, melamine laced dog food and toothpaste shipped in, insects threatening whole industries and the stability of our food system, increasing competition for energy sources and fewer jobs that actually pay a living wage for creating something of value so major retailers can make a larger profit off cheaper goods. We’ll be left with a bunch of minimum wage jobs in retail soon enough, and then nothing as no one will have any money to pay for anything. Increasing debt masked the problem in the past, but no longer. Think! How long can a household survive financially when more money and resources are flowing out than in? A country is like a household in a sense. Neither can survive long in an imbalanced trade environment.
    Increasing taxes on the highest earners is a small, very small step. The taxes on corporations must be increased and deductions decreased. Only costs that build the company’s fixed assets and labor pool should be deductible as these expenses benefit the most people through direct jobs and increased efficiency of operations. Golf trips moonlighting as “business” are a sick joke. If a corporation has a choice between giving more money to the government as taxes or hiring more workers, what would they choose? Think of it as the “trickle down” theory, but with the fist of government squeezing the corporate sponge.

  7. Averages may not send children and grandchildren to college, but Montgomery GI Bill (my husband) and merit-based scholarships (myself) do. There’s more than one way to do things if you have the determination.

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