Monday, August 3, 2009

Net Worth Update

Readers keep coming back to PFStock to read my Net Worth Comparison post. Curiosity definitely gets the best of people -- wanting to assess how one is doing compared to others. Basically, people want answers to the question of "How am I doing versus other people my age with a similar income?"

In March 2008, PFStock asked the question: Are You Wealthy? This post examines a formula from the book The Millionaire Next Door For your reference, the formula is repeated here:

Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten. This, less any inherited wealth, is what your net worth should be.

In addition to the Millionaire formula, I mentioned a couple of websites for readers to look at. CNN Money has a Net Worth Comparison Tool that asks you to enter your age and annual income. These numbers have changed since my original post. Since people are most interested in the "numbers", I've decided to reproduce the results here (with appropriate credit given to the information source: Nielsen Claritas).

Net Worth by Age (from CNN Money)

Age Median Net Worth
younger than 25 $1,475
25-34 $8,525
35-44 $51,575
45-54 $98,350
55-64 $180,125
65 and older $232,000

Net Worth by Income (from CNN Money)

Annual Income Median Net Worth
less than $25k $1,250
$25k-$49k $34,375
$50k-$74k $168,500
$75k-$124k $301,475
$125k-$149k $644,100
$150k and higher $1,122,900

From these statistics, you can compare net worth for an average 30 year old, 40 year old, 50 year old, or whatever your age. The income ranges are fairly broad, but should also give you an idea of where you stand.

Note: Please also participate in the annual income / net worth polls in the sidebar of my blog. See also: How Much Do You Make? And leave an anonymous comment. Comments to this post are also welcome.

The other website that I mention as a data source is NetworthIQ. This site has compiled a set of Net Worth Statistics based on what its members have reported. This data was current as of 4/22/2009. In addition to age and yearly income, Networth IQ lets you compare net worth based on education, occupation, and state of residence. The age groups and income ranges are broken out in finer increments than the CNN Money data.

Net Worth by Age (from NetworthIQ)

AgeMedian Net Worth
under 25 $9,660
25-29 $37,229
30-34 $136,629
35-39 $298,500
40-44 $491,100
45-49 $690,090
50-54 $702,552
55-59 $1,123,000
60-64 $507,000
65-69 $2,294,492
70 and over $2,734,001

Net Worth by Income (from NetworthIQ)

Annual IncomeMedian Net Worth
$0 - $9,999 $1,830
$10,000 - $19,999 $839
$20,000 - $29,999 $1,808
$30,000 - $39,999 $3,582
$40,000 - $49,999 $22,211
$50,000 - $59,999 $32,461
$60,000 - $69,999 $50,177
$70,000 - $79,999 $96,520
$80,000 - $89,999 $113,100
$90,000 - $99,999 $176,548
$100,000 - $149,999 $267,042
$150,000 - $199,999 $513,000
$200,000 - $249,999 $549,446
$250,000 + $1,035,000

There are a couple of peculiarities in the NetworthIQ data. Specifically, it appears that net worth goes down in the 60 to 64-year old age group. Also, net worth also seems to drop in the $10,000 to $29,999 income range. This non-monotonicity is probably due to the way that these data are reported.

Some would argue that the NetworthIQ data is not a good representation of the population as a whole. This is because the net worth people report is not audited, and you can see only what people choose to disclose. Arguably, there are those who may have overestimated the value of their home, cars, and personal property in order to inflate their net worth. But taken with a grain of salt, one can still find some usefulness in the numbers.

Even the detailed data from the last two information sources leave some questions in my mind. I have made the assumption that these data are meant to measure the net worth of American citizens. However, NetworthIQ also includes a significant number of profiles for residents of other countries, such as Australia, Canada, New Zealand, and the United Kingdom. It is also unclear if the reported networth is based on individual or household net worth? Obviously, per capita net worth would be lower than household net worth. Does anybody want to weigh in on these issues?

So there you have it: three ways that you can compare your net worth to others. So, how do you stand?



dunkelblau said...

A major side benefit of investing savings is that
we get used to living on a fraction of take home
pay. Even poor investments give better returns
than the Chinese made junk we buy from malls.

I think wealth shouldn't be measured in dollars
but rather in time-- as in how long can you hold
out without any wage income? Investing well
increases the numerator, but even investing badly
still shrinks the denominator (assuming you don't
borrow to invest).

I think a conservative target number is 100 minus
your age in years. This way there's little chance
of outliving your money.

Fred Schebesta said...

Great post. Love the analysis on the data, especially the NetworthIQ data. Just found this net worth plugin that can be used with wordpress:

I think its time I start keeping track of my net worth!

pfstock said...

Thanks for your comments. That looks like an interesting plugin. However, PFStock runs on the Blogger platform, not WordPress. I don't think that I can use it, but maybe some of my fellow bloggers can.

L said...

NetworthIQ's data is most likely positively skewed towards the higher end due to its users probably being a more money/asset conscious crowd. Not exactly representative of the population. Still interesting though. I think it's intrinsic and within our nature to be curious about other people and where we stand in the scheme of things.

Personal finance investing said...

One of the important element from the Personal Finance aspect is Investment. Without investment, you will gain no profit and suffer from high inflation rates which contribute a big portion of failure in your financial status.

Penny Stock Blog said...

I cannot believe how little the net worth is for someone that is under twentyfive.

rosannepm said...

I'm still a little confused about net worth. Does it include property owned? Does it include 401K svings?


Net worth is generally everything you own but your personal home that you own.

Financial Independence said...

I like the meaningful posts back then! Thank you.