The Federal Reserve’s 2022 consumer survey reveals a striking picture of American prosperity. The average household’s net worth has risen to $1.06 million, a 23% increase from $868,000 in 2019. While impressive, this statistic masks a more nuanced and unequal economic landscape.
Despite the apparently booming financial status of American households, the reality is more complex, especially for the middle class. Between 2019 and 2022, real median household income grew modestly by 3%, while real median household income rose significantly by 15%. These gains mainly benefited higher income groups, widening existing income inequality.
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The period witnessed a 37% increase in real average wealth and a 23% increase in real average wealth, marking the largest three-year increase in the modern history of the Survey of Consumer Finances. Yet this overall growth masks the unequal distribution of welfare gains. Homeownership, often a significant component of net worth, increased slightly to 66.1%, with the average net home value rising from $139,100 in 2019 to $201,000 in 2022. Home value growth contributed significantly to the increase in net worth and exacerbated the problems with housing affordability, as the average home value rose to more than 4.6 times the average household income.
Inequality is further emphasized when participating in pension schemes and investing in the stock market. While more than two-thirds of working-age families participated in retirement plans, increases in account balances were concentrated among families in the top half of the income distribution. Similarly, stock market participation grew across all income groups, but gains were significantly greater for those between the 50th and 90th percentiles.
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The top 1% of American households own 30% of America’s wealth – a massive $44.6 trillion.
Wealth inequality is clearly visible when comparing wealth distribution across income quintiles. The top 20% of income earners in the United States owned about 71% of the country’s wealth, while the bottom 50% of income earners owned only about 2.5% of total U.S. wealth at the beginning of 2024.
The biggest difference in assets is in stocks and mutual funds, where the top 1% have more in these investments than the rest of the top 20% combined. This inequality continues across income quintiles, with the middle class having significantly less equity.
Mortgage debt burdens the middle class the most. For the middle 60% of income earners, mortgage debt represents a larger percentage of their wealth than the top 1%. This burden reflects the challenges the middle class faces in increasing their wealth relative to higher earners.
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Inflation and other economic pressures have left 64% of Americans living paycheck to paycheck and struggling to meet daily expenses. Many households cannot cover an unexpected $400 expense, highlighting the lack of emergency funds for unforeseen circumstances.
Economic uncertainty has contributed to the continued growth of consumer debt, putting many Americans under financial strain.
The average term of auto loans has also increased, indicating that Americans are taking longer to pay off their car purchases, adding to their financial burden. In earlier decades, auto loans typically had shorter terms, ranging from 36 to 60 months. Over time, there has been a shift towards longer loan terms, such as 72 months or even longer.
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Combined with the skewed distribution of wealth and income evident in the Federal Reserve data, these factors explain why many Americans may not be feeling the prosperity suggested by average household wealth.
It’s also worth noting why many people don’t feel as wealthy as the numbers suggest. While the average net worth in America is over $1 million, the average net worth is $192,900 – which paints a more realistic picture. The median is a better measure because it represents the midpoint, meaning half of households have more and half have less. This number gives a clearer picture of what most people experience, as a few wealthy individuals can skew the average.
This growing gap between perceived wealth and financial reality highlights the value of financial advisors, especially for those making between $150,000 and $250,000 per year. Often considered a new affluent group, this group does not always seek financial guidance. However, advisors can provide important insights to help manage immediate financial challenges and plan for future growth, ensuring their financial strategies align with their current and long-term goals.
Some elements of this story were previously reported by Benzinga and have been updated.
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This article If the average American household is a millionaire with a net worth of $1.06 million, why do people feel so broke? originally appeared on Benzinga.com
