Every three years, the Federal Reserve's Survey of Consumer Finances (SCF) provides a detailed snapshot of financial conditions among American households. The report explores income, asset ownership, debt burden, and net worth across different demographics.
The most recent SCF was conducted throughout 2022 and published in October 2023. The report found that the average income was $141,390 and the average net worth was $1.06 million among U.S. families. Read on to see an age-based breakdown, and to learn why an S&P 500 (^GSPC +0.58%) index fund is a great way to build wealth.
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The average income among American households
The chart below breaks down the average income (before taxes) among American households based on the age of the reference person, defined as the male in mixed-sex couples and the older individual in same-sex couples.
|
Age Group |
Average Income |
|---|---|
|
18-34 |
$82,660 |
|
35-44 |
$168,720 |
|
45-54 |
$170,840 |
|
55-64 |
$175,440 |
|
65-74 |
$141,700 |
|
75+ |
$107,820 |
|
All Households |
$141,390 |
Data source: Federal Reserve 2022 Survey of Consumer Finances.
The average net worth among American households
The chart below breaks down the average net worth (assets minus liabilities) among American households based on the age of the reference person. For context, assets refers to (1) financial assets like bank accounts, retirement accounts, and other investment accounts, and (2) nonfinancial assets such as vehicles and real estate. Likewise, liabilities refers to all forms of debt.
|
Age Group |
Average Net Worth |
|---|---|
|
18-34 |
$183,380 |
|
35-44 |
$548,070 |
|
45-54 |
$971,270 |
|
55-64 |
$1.56 million |
|
65-74 |
$1.78 million |
|
75+ |
$1.62 million |
|
All Households |
$1.06 million |
Data source: Federal Reserve 2022 Survey of Consumer Finances.
The median income and net worth among American households
Some readers may be surprised that the average American is a millionaire with a six-figure income. But those big numbers come with a big caveat. Averages tend to be misleading when dealing with asymmetrical data, meaning data sets comprising values that are unevenly distributed.
Income and net worth fit the definition of asymmetrical data perfectly. The top 10% of American households account for 66.9% of total household wealth, according to the Federal Reserve Bank of St. Louis. As such, the average values discussed in the previous sections are skewed higher by a relatively small portion of the population.
The median (middle value) is often more useful when dealing with asymmetrical data. The chart below shows the median income and net worth among American households based on the age of the reference person.
|
Age Group |
Median Income |
Median Net Worth |
|---|---|---|
|
18-34 |
$60,530 |
$39,040 |
|
35-44 |
$86,470 |
$135,300 |
|
45-54 |
$91,880 |
$246,700 |
|
55-64 |
$82,150 |
$364,270 |
|
65-74 |
$60,530 |
$410,000 |
|
75+ |
$49,070 |
$334,700 |
|
All Households |
$70,260 |
$192,700 |
Data source: Federal Reserve 2022 Survey of Consumer Finances.
As shown in the chart, the 2022 SCF reported a median income of $70,260, meaning 50% of households reported less income and 50% of households reported more income. Similarly, the 2022 SCF reported a median net worth of $192,700, meaning 50% of households had less wealth and 50% had more wealth.
Some readers may be dissatisfied with their current financial position, but virtually anyone can build wealth with the right mindset and proper budgeting. Financial experts often recommend the 50-30-20 framework, which breaks income into the three spending categories detailed below.
- Needs: 50% of income should be allocated to necessities like food, housing, utilities, and minimum debt payments.
- Wants: 30% of income should be allocated to discretionary spending like travel, entertainment, and luxury items.
- Savings: 20% of income should be allocated to debt payments (above the minimum) and retirement savings.
The last category is particularly important. With the right investments, savings can grow many times in value over the course of a lifetime. An index fund that tracks the S&P 500 is a great option for most people.
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Key Data Points
Owning an S&P 500 index fund is an excellent way to build wealth
The S&P 500 measures the performance of 500 large U.S. companies. The index includes growth stocks and value stocks from every market sector, which collectively account for almost half of global equities by market capitalization. In short, an S&P 500 index fund lets investors spread money across many of the most influential businesses in the world.
Personally, I prefer the Vanguard S&P 500 ETF (VOO +0.55%) because it bears a low expense ratio of 0.03%, and Vanguard is one of the largest and most reputable asset management companies in the world. But the differences between that product and other S&P 500 index funds are relatively small. What matters most is selecting one and adding money on a regular basis.
There are three reasons to own an S&P 500 index fund. First, the S&P 500 beat virtually every other asset class on the planet over the last decade, including international equities, real estate, precious metals, and fixed-income. Second, most professional asset managers underperformed the S&P 500 over the last decade. Third, the S&P 500 has produced a positive return over every 20-year period in history.
In short, patiently holding an S&P 500 index fund has historically been a surefire way to build wealth at a fairly rapid clip. For instance, the S&P 500 returned 1,970% during the last three decades, compounding at 10.6% annually. At that pace, $400 invested monthly in an S&P 500 index fund would be worth $84,800 in one decade, $328,400 in two decades, and $1 million in three decades.
