Most people want to do well financially. Yet judging whether one is making progress depends on what yardstick is used and who serves as the point of comparison.
A commonly used metric for measuring financial health is net worth – the sum of one's total assets. Yet while car models or handbag brands may hint at spending power, outward displays of consumption are notoriously inaccurate signals of people's real financial health. Those who are anxious to know how they really keep up with the Joneses may instead look to net worth by age statistics.
Multiple studies show anxiety around money is rising among younger generations. One recent study by Northwestern Mutual claims roughly half of millennials and Gen Z are depressed due to financial woes and that worrying about money is causing many of them to lose sleep and, in some cases, physical illness.
Achieving financial independence and retiring early seems to be a generational obsession, yet perhaps these online trends set unrealistic expectations for most young people. And with memes and media perpetuating unflattering comparisons to their parents before them, peace of mind may remain decades away. Wealth takes a lifetime to generate – data from the most recent analysis of Fed data shows most people's net worth peaks in their late 60s.
Yet by starting investing earlier, younger people can improve their chances of wealth-building and raise their net worth relative to their peers.
Age and Number
Net worth does not wholly reflect financial health, yet it can be just as useful for regular folks to keep track of their wealth. In short, one's net worth is the sum of the value of their assets minus their debts or liabilities. Note: Median reflects the true middle of all net worths in a group, while the average is the mean and is more skewed by extremely high or low numbers.
According to the most recent Fed data (from 2019), Americans aged under 35 have a median net worth of $13,900, while their average net worth is $76,300. The median net worth of the typical 40-year-old is $436,200, while the average is $91,300.
By age 50, the median net worth has climbed to $168,600, while the average is nearing the seven figures, at $833,200. By 60, median net worth reaches $212,500, while the average peaks at $1,175,900. For those aged 70 and above, the median and average net worth begins to decline as they finish working and start spending more of their retirement nest eggs.
However, some advisors recommend people focus on running their own race and not get too distracted comparing themselves to others.
“As a colleague of mine likes to say, ‘Keep finance personal,' that is, everyone has their unique journey,” says Joe Petry, Founder and Financial Planner of Mayfair Financial. “We should ask ‘How is this person doing relative to the values and goals they have set for themselves?”
Many alarming statistics in recent years reveal millennials have not yet hit important wealth-creation milestones.
In 2020, there were more millennial workers in the US labor force than any other generation, yet they controlled just 4.6% of the country's total wealth, per Federal Reserve data. Baby boomers, by comparison, enjoyed vastly more economic power much earlier on in their lives. In 1989, when boomers were roughly the same age as millennials, they dominated 21% of all American assets – nearly fivefold what millennials own.
Yet some advisors recommend not buying too much into the media hype about these gulfs in generational wealth. They counsel instead that many of these inequalities will eventually correct themselves.
“Older generations will always be wealthier than younger generations; they have the key factor on their side: time,” says Caleb Vering, associate wealth advisor of Farnam Financial. “Patience and consistency are paramount for Millennials in building wealth.”
Fortunately for the young, there are now more accessible investment vehicles are more varied and more accessible than ever before. However, this rapidly evolving investment landscape creates choice overload, and picking the right asset class and strategy can often lead to analysis paralysis.
There are many ways to generate monthly income, from corporate bonds to farmland and from cryptocurrencies to dividend stocks.
“Certificates of Deposit seldom outperform inflation over the long run, but can be acceptable for cash reserve purposes,” says Petry.
“Crowdfunding, real estate notes, junk bonds, are all too exotic to be a part of most people's portfolios–adding unnecessary complexity and high cost.”
Although some asset classes – especially property – have tended to be the preferred asset across generations of Americans. For those who don't want the hassle of real estate upkeep, there are solutions, like buying turnkey properties. Yet the barrier to entry for property remains high, so some advisors recommend turning to markets instead.
“Stocks, however you hold them, have historically been the best way to compound wealth. Stock returns, including REITs, have outdistanced bond returns by miles over the long haul,” Scot Johnson, CFA, Advisor and Chief Investment Officer at AHC Invest.
“Our best advice is to start investing in stocks, keep investing in stocks, and stay invested in stocks. Working with an advisor can help tailor your portfolio to your goals and needs.”
Before investing, however, young people need to begin with the basics – financial awareness and discipline.
“To build wealth, the younger generation should focus on living below their means, minimizing consumer debt like credit cards and car loans, eventually purchasing a home, and having a buy-and-hold investment strategy,” Angela Dorsey, CFP, MBA Founder and Financial Planner of Dorsey Wealth Management.
Amidst rising financial anxiety among young people, it may be tempting for individuals to compare themselves to others by net worth. However, many advisors stress that what really matters is whether a client is on track to meet their unique financial goals, not where their net worth is compared to their peer group. Financial discipline: Living thriftily, curbing debts, and embracing a strategic investment path can go a long way to securing financial satisfaction. Ultimately, however, financial well-being is subjective and comes down to the deeper values of each individual.
This article was produced and syndicated by Wealth of Geeks.