Net worth isn't the only financial data point you should be tracking, but it's an important one. Keeping tabs on your net worth can help you achieve financial freedom, and knowing how your net worth stacks up can lead to changes that guarantee a secure retirement. Fortunately, the Federal Reserve triennial study of consumer finance released last fall offers insight into whether you're running ahead of the pack or in need of doubling down on your plans to boost savings and reduce your debt.
Getting a big boost
America's net worth tumbled during the Great Recession, but the Federal Reserve's survey shows that rising income, stock market prices, and home values have recently put people in much better financial shape.
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The typical American family's median income increased to $52,700 in 2016 from $48,100 in 2013, and home prices and stock market prices improved by an average 6.5% and 9% annually over the three-year period. At the same time, the average amount homeowners owed on their primary residence fell 6%, and credit card balances fell 3%. As a result, the percentage of people with debt payment-to-income ratios above 40% dropped to 7% from 8.2% in 2013, which is lower than at any time between 2004 and 2013.
Thanks to rising asset values and shrinking debt levels, Americans' median net worth increased by 16% to $97,300 between 2013 and 2016.
Digging deeper into the data
According to the Federal Reserve's study, there's a strong relationship between education and net worth. The median net worth of families with a college education was $292,100, but it was only $66,100 for families with at least some college education and $22,800 for families without a high school degree.
It may also be helpful knowing what percentage of families have a net worth that's above or below specific levels of income. In the next table, broken down by income percentile, you'll see that families in the third quintile of income had a median net worth of $88,600 as of 2016.
| Decile | Median Net Worth | % Change 2013-2016 |
|---|---|---|
| <20% | $7,000 | 6% |
| 20% to 39.9% | $30,000 | 4% |
| 40% to 59.9% | $88,600 | 55% |
| 60% to 79.9% | $170,600 | 3% |
| 80% to 89.9% | $396,500 | 34% |
| 90% to 100% | $1,629,000 | 40% |
Data source: New York Federal Reserve.
Also, it may also be helpful to consider median net worth by age.
| Age | Median Net Worth | % Change 2013-2016 |
|---|---|---|
| <35 years | $11,100 | 4% |
| 35-44 | $59,800 | 24% |
| 45-54 | $124,200 | 14% |
| 55-64 | $187,300 | 9% |
| 65-74 | $224,100 | (6%) |
| 75+ | $264,800 | 32% |
Data source: New York Federal Reserve.
The biggest contributors to net worth
Overall, people with money in the stock market and homeowners enjoyed the biggest boost to their net worth. That's probably not surprising given the gains in home values and the fact that the median value of pooled investment funds, including mutual funds, increased 38% between 2013 and 2016.
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Unfortunately, the importance of homeownership and investing means that many Americans are missing out. According to the Federal Reserve survey, primary homeownership fell to 63.7% in 2016 from 65% in 2013, and retirement plan participation was just 52% in 2016.
If you're among the 48% of people not contributing to a retirement account yet or your net worth is trailing your peers, perhaps the best thing you can do to improve your financial picture is to take full advantage of these accounts. If you're just starting out investing, even investing a small proportion of your income can add up over time, especially if you increase your contribution rate every year.
