It May Not Feel Like It, But Americans Are Richer Than Ever as Median Net Worth Soars 37% in 3 Years
Written by
Angela Mae
Edited by
Chris Cluff
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
In a recent survey, it was found that the real median net worth of Americans increased 37% between the years of 2019 and 2022. Considering this is the largest surge in a three-year period since 1989, it seems plausible that the wealth distribution in America has begun to narrow somewhat.
Keep in mind that, while the median net worth rose 37%, the mean net worth saw a comparably lower increase of just 23%. Understanding the distinction between the mean and the median is important as it can give a clearer picture of what’s actually happening.
In brief, the “mean” indicates the average net worth of all surveyed demographics averaged into one. Considering this could include anyone from the surveyed groups, the numbers here could be somewhat skewed. The “median” indicates the middle value of all net worths ranked from the largest to the smallest. Given this, the median may be considered a little more representative of people’s financial situations.
Regardless, it seems clear from the survey that people’s overall net worth has increased in the past several years. Here are some possible reasons.
Higher Homeownership Rates & Increased Equity
The rate of homeownership increased to just over 66% in the past several years. More than that, property values have also risen significantly. From 2019 to 2022, the median net housing value — that is, the property’s value after accounting for the mortgage debt — surged from $139,100 to $201,000.
What this means is that many individuals and families who own homes also have experienced equity growth in their property. This doesn’t necessarily mean that these homeowners have positive cash flow or greater income, however.
“Keep in mind net worth isn’t just about income and cash flows,” said Bob Chitrathorn CPFA, CFO and vice president of wealth planning at Simplified Wealth Management. “It also includes equity in real estate. This is where I have seen people’s net worth increase the most. Many of my clients increased net worth via a combination of [the] increase in [house] values and increased investments (interest rates are up).”
Increased Business Ownership
An increased prevalence in business ownership may be another reason for Americans’ overall rise in net worth.
According to the Federal Reserve, approximately 20% of American families had a privately held business last year. Families in the lowest income groups saw the greatest increase in business ownership, while those in the middle and upper-middle income groups remained relatively stable.
Greater Participation in Retirement Plans
Both employer-sponsored retirement plans, like the 401(k), and individual retirement accounts (IRAs) can help individuals grow their net worth and retirement savings. In the past few years, more employees have actively contributed to their own retirement plans than ever before. Although not all income groups contributed equally to their plans, overall participation is up.
Surge in Stock Market Investments
The stock market has long been considered a way to build net worth, especially for long-term investors. Many individuals who invested in the stock market in the past may now be experiencing real positive growth from their investments.
“When one compares just a few years ago looking at the S&P 500 compared to where it is now, anyone that purchased any stocks a few years ago — even if they were not calculated decisions — often benefited from the tide going up over the past few years,” said Sebastian Jania, the owner of Ontario Property Buyers, a real estate solutions and investment company.
Lower Interest Rates
The drop in interest rates a few years ago could be another reason for the rise in average net worth. Not only did it lower the cost of financing, but it also paved the way for greater opportunities for those who took advantage of the lower rates.
“Taking interest rates to zero increased the money supply and made it less expensive for companies and individuals to obtain money, thus enabling them to spend more,” said David Oh, head of tax and estate planning at Arta Finance. “This took some investment valuations to record levels.”
Ways To Build Your Net Worth
While Americans as a whole may be richer than ever before, that doesn’t mean that everyone’s feeling the positive gains. If you’re looking for some ways to increase your net worth, here are some strategies to consider.
Save and Diversify
This might seem like a no-brainer, but it’s still a good first step if you’re new to building wealth. Start saving as much as you can and diversify your investments across multiple categories.
“I think the best way to build one’s net worth is by saving as much as you can all the time,” Chitrathorn said. “Then, effectively diversify your portfolio to various things that increase in value and therefore increase your net worth.”
Invest in Assets with Greater Returns
Investing comes with some level of risk, and there are (unfortunately) no guarantees that you’ll see your expected or desired return on your investment. With that in mind, investing in various assets can help you build wealth.
“[One] of the best ways to build one’s net worth is through owning assets,” Jania said. “Assets that are purchased through very calculated decisions — as well as potentially some leverage — often pay the biggest returns over time.
“An example of this would be to purchase distressed real estate, fix it up and then rent it out. Through this approach, one creates wealth through purchasing at a discount and then creates more wealth through long-term principal pay-down and appreciation.”
Purchase Low-Cost Stocks
“A second method would be to strategically buy stocks at a discount, which can happen when there is chaos in the market,” Jania said.
Just be sure to do your research to ensure you’re investing in a company with promising returns and a higher likelihood of rebounding in the future.
Create a Solid Foundation
Building wealth can take time, persistence and patience, but it’s a good idea to start with a financial plan and a solid foundation.
“To increase your net worth, you should start with a financial plan,” Oh said. “This allows you to take inventory and set a baseline to effectuate changes that can help you build wealth. From there, common practices apply: paying off debt, increasing savings and taking advantage of your employer’s tax-deferred and retirement benefits.
“Once you have a solid foundation, you’ll be in a better position to take on risk and will want to educate yourself on constructing and maintaining a well-diversified portfolio of investments.”
More From GOBankingRates
