The wealth gap: These traits are common with affluent Americans. How do you compare?
Corrections & Clarifications: An earlier version of this article misstated the most affluent generation.
If your neighbors drive fancy cars or own their own businesses, does that make them a financial success? Not necessarily.
Those are two traits often associated with wealth, but other factors better reflect affluence, or the lack thereof.
Wealthier Americans pursue certain financial behaviors, spend their money in certain ways and favor certain investments. Less affluent people typically don’t.
Some wealth indicators are obvious. Rich Americans tend to have college educations, earn more, save a lot and take advantage of tax-sheltered retirement strategies. They also tend to fall into certain racial and age groups.
But other behaviors, spending patterns and investment choices might surprise you. A recently updated U.S. Census Bureau report on affluence and the wealth gap, generally reflecting data from 2019, highlights many of these characteristics. Some of these traits can help you build wealth, while others mostly reflect whether you have it.
Investing in the 2nd half of 2022: Pay attention to these factors
College degrees are important
Attending college is increasingly expensive, but people with higher educational achievements do tend to earn more. They also tend to have higher net worths. Net worth, or wealth, isn't the same as income. Net worth equals personal assets minus debts. You could own a $1 million home, but if you owe $1.5 million on it, your net worth would be negative.
Anyway, Americans who didn't finish high school tend to have the lowest average net worth, basically living hand to mouth with a median or midpoint wealth of just $5,090 as of the 2019 study. The numbers climb steadily as people go up the education ladder with high school diplomas ($40,560 in net worth), then some college ($59,700), bachelor's degrees ($196,800) and finally graduate or professional degrees ($408,700).
A notable divide separates college graduates from people who took college courses but didn't finish. These individuals don't have the benefit of a degree but possibly accumulated a lot of student loan debt.
Marriage pays financial dividends
Married couples should have a higher median or midpoint wealth than singles, especially if they're bringing in two incomes. There are economies of scale to marriage in that two spouses can share a lot of expenses. Each person doesn’t need his or her own refrigerator, swimming pool or homeowners insurance policy. And in some cases, they can avoid or minimize costs such as child care.
Still, the Census study found that married couples aren't merely twice as wealthy, on average, compared to single people but many times more. Married couples had a median net worth of $269,000 in 2019 compared to $50,160 for single men and $36,600 for single women.
Such differences aren't explained solely by an extra paycheck. "Otherwise, married householders would have no more than twice the median wealth of unmarried householders," the Census Bureau noted.
Other factors likely are also involved. One possibility is that marriage "engenders a responsibility ethic, where spouses set aside money for an imagined future together," wrote W. Bradford Wilcox, a sociology professor at the University of Virginia, in a blog. "This translates to higher rates of per capita savings and lower rates of spending per capita among the married."
A recession is at the doorstep. Here's why it may not be as bad as you might think
Two types of assets loom large
Americans can invest in all sorts of things — stocks, bonds, cryptocurrencies, commodities, real estate and more. But they concentrate on two key areas: housing and retirement accounts, which together account for 65% of total household net worth.
The median or midpoint amount of net housing wealth (home values less mortgage balances) was $130,000 as of 2019. Median holdings in Individual Retirement Accounts, workplace 401(k) accounts and the like came to $69,900. Both figures have risen since then, but the updates weren't reflected in the Census report.
Retirement accounts generally hold stocks and mutual funds. Many people also own these investments in nonretirement accounts — worth about $35,100 per household on average — the report said.
Homeowners had a median wealth of $305,000 at the time of the study, compared to net worths of just $4,084 for those who rented. But even if home equity is subtracted out, median homeowner wealth of $125,500 was still nearly 31 times that of renters.
"Households that can afford to purchase a home are also more likely to have the resources to invest in other wealth-generating assets," the Census Bureau said. In addition, renters tend to be younger than homeowners, meaning they've had less time to accumulate wealth.
Business stakes are modest
People who can grow a business over time sometimes can generate huge rewards for their labors, but the Census study suggests most owners don't do all that well.
Business assets don't account for an especially large share of overall wealth, at about $6,000 in net worth per household, according to the Census study. Only about one in six households has any business equity.
Small businesses face a gamut of challenges, including a possible steady need for financing that can drain an owner's personal wealth. While 68% of new companies survive the first two years, just 49% survive five years, according to a study spanning 25 years by the U.S. Small Business Administration.
Small business owners currently are highly pessimistic, with their outlooks for future conditions at a 48-year low as of June, reported the National Federation of Independent Business. Inflation, worker shortages and the possibility of tax hikes and more regulation are weighing on owners, said Bill Dunkelberg, the group's chief economist.
More coverage: Millions of small businesses could get sold in the next decade. What owners should know
Bank accounts, cars aren't decisive
While most adults have checking or savings accounts at banks or credit unions, they don't store a lot of their wealth there. About 95% of households had such accounts as of the 2019 study, yet they held just 8% or so of total wealth.
So, too, for motor vehicles. While most Americans own at least one car or truck, they don't have a lot of wealth tied up in them. Vehicle equity — the value of cars and trucks owned less the balance on auto loans — amounted to just 2% of overall wealth, or a median of $7,290 per household, according to the report.
Cars and trucks generally lose value over time, which doesn't help motorists build wealth. You can't always judge a person's affluence by the vehicle he or she drives, especially if it is leased.
Other factors also are at work
The Census report looked at wealth gaps in other ways, including demographics.
For example, women generally trail men, while discrepancies are apparent for racial groups — Asian Americans led the way with a 2019 median net worth of $206,400, followed by whites ($187,300), then Latinos ($31,700) and finally African Americans ($14,100).
Age is another key factor, as wealth generally climbs as people grow older, are more established in their careers, pay off student loans, build up housing equity and so on.
Baby boomers, who are now between the ages 58 and 76 and thus nearing or in retirement, are the second-most affluent generation, with a median net worth of $240,900 in 2019. Members of Generation Z (adults up to age 25) were worth just $3,080. Then came millennials (ages 26 to 41) at $27,420 and Gen Xers (42 to 57) at $121,400.
Older seniors, or the Silent Generation, are a bit better off than baby boomers, with $253,200 in median 2019 assets. Older adults are at ages when they must draw down savings to meet retirement expenses. Out-of-pocket medical costs alone can average $300,000 over the post-65 lifespans for a typical married couple, according to a Fidelity Investments study.
Reach the reporter at russ.wiles@arizonarepublic.com.
Support local journalism. Subscribe to azcentral.com today.
This article originally appeared on Arizona Republic: US Census report shows common characteristics of wealthy Americans
