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How Does Your Net Worth Compare to the Average American's?

The Motley Fool logo The Motley Fool 7/3/2017 Maurie Backman
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We live in a society where it's common to compare ourselves to others. (We can thank social media for that.) As such, it's natural to wonder how our individual net worth compares to those around us.

So let's cut to the chase: According to the Census Bureau, as of 2013 (the last year for which this level of data is available), American households had a median net worth of roughly $80,000. But that number alone doesn't tell the whole story.

Where's our net worth coming from?

Before we go any further, let's get on the same page about what the words "net worth" really mean. Net worth is defined as the value of your assets once all of your liabilities have been factored in. As a very basic example, if you have $10,000 in savings and no debt whatsoever, your net worth will be $10,000. This assumes, of course, that you don't own any non-cash assets, like property, with assignable value.

While many factors come together to establish net worth, the single greatest contributor to that $80,000 figure is none other than home equity. In fact, 63% of households have equity in their homes, and as such, it represents one-third of that median $80,000.

Surprisingly, the next-largest contributor to net worth is retirement savings, and the reason that's surprising is that the bulk of Americans are considerably behind on savings. The Economic Policy Institute reports that almost half of Americans have yet to start socking money away for the future, and many of those who are saving are only managing modest yearly contributions to their retirement accounts -- but we won't knock the numbers.

Other factors contributing to Americans' net worth include investments like stocks and bonds, as well as life insurance plans. And there's always cash to consider, though most Americans don't have much of it: An estimated 69% of U.S. adults have less than $1,000 in savings, while 34% have no cash savings at all. But cash reserves aside, the typical American household still has enough assets to reach the $80,000 mark.

We owe a lot of money, too

Of course, net worth is a measure of assets and liabilities, and while that $80,000 figure might seem respectable, we can't ignore the fact that if it weren't for our collective borrowing habits, that number might be much higher. More than half of U.S. households are on the hook for unsecured debt -- namely, credit card debt. Meanwhile, Americans owe a collective $1.4 trillion in student loans, which, believe it or not, may be the single largest factor in bringing average net worth down. In fact, a recent New York Federal Reserve study found that over 16 million households actually have a negative net worth. The biggest culprit? Egregious loads of student debt.

How do you compare?

Now that you know how much net worth the average household has, you can look at your own number to see how it holds up. That said, keep in mind that the $80,000 figure we keep throwing around represents the median net worth by household, not individual. In other words, it stands to reason that a two-income family might have a higher net worth than someone who's single, so make sure you're really comparing apples to apples.

Furthermore, while knowing how your net worth stacks up against that of the general population might give you a sense of how well (or poorly) you're doing financially, rather than fixate on everyone else, you're better off focusing on ways to build your own assets and reduce your liabilities. For example, if you're behind on savings (both emergency and retirement), making lifestyle changes to free up cash can help beef up that asset column.

Retirement plan contributions can be exceptionally helpful in building net worth, because you'll get an opportunity to grow that money on a tax-deferred (or in some cases, tax-free) basis. Currently, workers under 50 can put up to $5,500 a year into an IRA and 18,000 a year into a 401(k). If you're 50 or older, these numbers climb to $6,500 and $24,000, respectively.

But eliminating debt is just as important as increasing your assets, so if you're carrying a costly credit card balance, now's the time to start chipping away at what you owe. Similarly, if you're among the millions of U.S. adults with student debt, accelerating the repayment process will not only save you money on interest, but help you boost your net worth sooner.

Here's one final thing you can learn from all of this: Though there are plenty of situations where it pays to rent a home rather than buy one, under the right circumstances, homeownership can be a smart financial move that not only increases your net worth, but provides a number of long-term tax benefits. Or, to put it another way, a home that you own can serves as an asset, but a home that you rent will always be nothing more than an expense.

Finally, no matter what steps you take to build your net worth, remember that accumulating wealth is a process. If you're 25 years old and living on a modest salary, you almost can't be expected to match the net worth of a 50-something at the peak of their career. While knowing the average household's net worth might give you a number to aim for, be sure to keep things in perspective and set your own goals.

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