What is the average net worth per household?

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squirm
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What is the average net worth per household?

Post by squirm »

I've been trying to find what the average net worth per household in the US is. I've seen the federal reserve report, but that takes into account home equity. I never count home equity as part of our net worth, our home is not an investment.

I'd like to also subtract out the retirement accounts. Essentially I guess I'd like to find out what the household net worth is on savings, investments and assets minus retirement and the primary home.

If anyone can point me or provide a link or has an idea, I'd appreciate it.
ProfessorX
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Re: What is the average net worth per household?

Post by ProfessorX »

Almost all of my families net worth is contained in housing + retirement accounts (at least at the moment). With that stuff, I am substantially above the median. WIthout that stuff I am very much sub-par (I would imagine).
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Re: What is the average net worth per household?

Post by richard »

This chart lists components of net worth. Just subtract out housing for net worth minus housing
http://www.census.gov/compendia/statab/ ... 2s0721.pdf

With a bit of googling, you should be able to figure out the total amount held in retirement accounts, or at least tax favored accounts such as IRA and 401(k). Divide by the number of households.
Last edited by richard on Sun Apr 15, 2012 9:58 am, edited 1 time in total.
bb
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Re: What is the average net worth per household?

Post by bb »

What is the significance of household net worth minus retirement accounts.
Someone with a pension my feel less of a need to save money outside of
retirement accounts.
dalerobk
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Re: What is the average net worth per household?

Post by dalerobk »

I would guess that the average household net worth (excluding housing and retirement accounts) is probably about negative $8,000. The caveat to that is that referring to net worth minus housing and retirement accounts is ridiculous.
HornedToad
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Re: What is the average net worth per household?

Post by HornedToad »

You are basically looking for taxable investable assets; not net worth. Search for something along those lines.

Unless you are extremely wealthy, I would imagine vast majority of people is under 50k-75k.

We certainly are, as extra money gets used to increasing retirement funding or paying down mortgage. The exception for that would be when we were saving to buy a house in the first place or if someone is saving for a future house.

Otherwise I'd just increase my retirement contributions instead of taxable investments once ~50k is set aside for emergency fund, vacations, expenditures, etc. Perhaps once I'm "saving" over 50-60k a year would my taxable investments dramatically start increasing.
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Re: What is the average net worth per household?

Post by dalerobk »

HornedToad wrote:You are basically looking for taxable investable assets; not net worth. Search for something along those lines.

Unless you are extremely wealthy, I would imagine vast majority of people is under 50k-75k.

We certainly are, as extra money gets used to increasing retirement funding or paying down mortgage. The exception for that would be when we were saving to buy a house in the first place or if someone is saving for a future house.

Otherwise I'd just increase my retirement contributions instead of taxable investments once ~50k is set aside for emergency fund, vacations, expenditures, etc. Perhaps once I'm "saving" over 50-60k a year would my taxable investments dramatically start increasing.
This is way, way off. I would expect average net worth to be about $50k (including retirement accounts and housing). I was actually serious about the -8,000. If you exclude housing and retirement accounts, then you're only considering (for 90+% of people) whatever cash they have in the bank. Very few people have any sizeable amount of money in the bank. When you consider car loans, student loans, credit cards, etc., then the average person has a negative net worth. And it's not even close. But again, that's just a pointless thing to consider. My net worth minus retirement accounts and housing is about negative $50,000. But that doesn't mean anything.
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Re: What is the average net worth per household?

Post by squirm »

I'm subtracting out housing and retirement because in my opinion that funding is already earmarked.
Yes, I understand receiving pensions are different.
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Re: What is the average net worth per household?

Post by HornedToad »

dalerobk wrote:
HornedToad wrote:You are basically looking for taxable investable assets; not net worth. Search for something along those lines.

Unless you are extremely wealthy, I would imagine vast majority of people is under 50k-75k.

We certainly are, as extra money gets used to increasing retirement funding or paying down mortgage. The exception for that would be when we were saving to buy a house in the first place or if someone is saving for a future house.

Otherwise I'd just increase my retirement contributions instead of taxable investments once ~50k is set aside for emergency fund, vacations, expenditures, etc. Perhaps once I'm "saving" over 50-60k a year would my taxable investments dramatically start increasing.
This is way, way off. I would expect average net worth to be about $50k (including retirement accounts and housing). I was actually serious about the -8,000. If you exclude housing and retirement accounts, then you're only considering (for 90+% of people) whatever cash they have in the bank. Very few people have any sizeable amount of money in the bank. When you consider car loans, student loans, credit cards, etc., then the average person has a negative net worth. And it's not even close. But again, that's just a pointless thing to consider. My net worth minus retirement accounts and housing is about negative $50,000. But that doesn't mean anything.
I never said the average was 50k-75k. I said the vast majority is under that amount. Meaning that 90-95% of people have an taxable investable assets below 50-75k. I agree with you that the average (or median depending on fat tails) is probably negative. Although if you include car loans as a negative, then the value of the car should also be included on the positive side to partially offset it.
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Re: What is the average net worth per household?

Post by BTDT »

Over time, I have come to consider the question 'net worth' more of an oxymoron, given the varied opinions on what 'net worth' may constitute/represent.

As an example, let's for grins say DH receives a government pension that provides 60K/yearly income, is tied to inflation, and provides a significant health care plan. Let's also say he has maxed social security payments for 35 years and and will collect the maximum at age 70. They also have $750 in IRA's and 401k's, not to mention a tax free VA pension, and younger darling wife's future pension and SS. Everything is paid for including the recently appraised $1/2 million home. Lets also say they have one dollar in the bank, plus two dollars in credit card debt.

What is their ' net worth' based on the OP questions? I guess they are considered broke, yet living on a very nice six digit guaranteed (?) annual income? :oops:
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Re: What is the average net worth per household?

Post by Abe »

jvclark02 wrote:Over time, I have come to consider the question 'net worth' more of an oxymoron, given the varied opinions on what 'net worth' may constitute/represent.

As an example, let's for grins say DH receives a government pension that provides 60K/yearly income, is tied to inflation, and provides a significant health care plan. Let's also say he has maxed social security payments for 35 years and and will collect the maximum at age 70. They also have $750 in IRA's and 401k's, not to mention a tax free VA pension, and younger darling wife's future pension and SS. Everything is paid for including the recently appraised $1/2 million home. Lets also say they have one dollar in the bank, plus two dollars in credit card debt.

What is their ' net worth' based on the OP questions? I guess they are considered broke, yet living on a very nice six digit guaranteed (?) annual income? :oops:
To me, their net worth is: The amount by which assets exceed liabilities. That would be all assets and all liabilities. Income is not relevant. If one wants to make adjustments to that, such as deducting home equity, etc. that's up to them, but net worth is net worth. Just my opinion.
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Re: What is the average net worth per household?

Post by lawman3966 »

I'ts hard to get updated data on the housing component of net worth, since housing values are in flux.

In 2009, the linked survey suggests that the median wealth of those in the 45-54 age group was about $94K, with about $50K of that being financial assets. It would take some work to find out how much inprovement people with $50K in financial assets in 2009 have experienced in the stock market rise between 2009 and the present. However, I doubt it's dramatic, as most people at that asset level likely don't have more than about 50% in stock funds, due to the need for emergency funds etc.

The 45-54 is not a perfect indicator of the median for the nation. But, then again, age is critical factor in assessing a person's financial security. It's ok for a healthy 22 year old with a marketable degree to have $10 in the bank. But, a an ailing 67 year old with that much, without a govt pension, is clearly in a lot of trouble.

http://www.cepr.net/index.php/publicati ... ing-bubble
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wander
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Re: What is the average net worth per household?

Post by wander »

For me, that's anything you include in your will.
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market timer
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Re: What is the average net worth per household?

Post by market timer »

These projections show that most baby boomers will be almost entirely dependent on their Social Security income after they stop working.

The median household is in for a world of hurt.
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Re: What is the average net worth per household?

Post by squirm »

jvclark02 wrote:Over time, I have come to consider the question 'net worth' more of an oxymoron, given the varied opinions on what 'net worth' may constitute/represent.

As an example, let's for grins say DH receives a government pension that provides 60K/yearly income, is tied to inflation, and provides a significant health care plan. Let's also say he has maxed social security payments for 35 years and and will collect the maximum at age 70. They also have $750 in IRA's and 401k's, not to mention a tax free VA pension, and younger darling wife's future pension and SS. Everything is paid for including the recently appraised $1/2 million home. Lets also say they have one dollar in the bank, plus two dollars in credit card debt.

What is their ' net worth' based on the OP questions? I guess they are considered broke, yet living on a very nice six digit guaranteed (?) annual income? :oops:
Those are retirement funds, which I'm excluding. However you can price an annuity to come up with the present value of future income such those you mentioned.
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Re: What is the average net worth per household?

Post by 555 »

richard wrote:This chart lists components of net worth. Just subtract out housing for net worth minus housing
http://www.census.gov/compendia/statab/ ... 2s0721.pdf
I can't reconcile Tables 720 and 721. What am I missing.
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Re: What is the average net worth per household?

Post by market timer »

555 wrote:
richard wrote:This chart lists components of net worth. Just subtract out housing for net worth minus housing
http://www.census.gov/compendia/statab/ ... 2s0721.pdf
I can't reconcile Tables 720 and 721. What am I missing.
Debt is the difference. 720 = assets, 721 = net worth.
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Re: What is the average net worth per household?

Post by 555 »

market timer wrote:
555 wrote:
richard wrote:This chart lists components of net worth. Just subtract out housing for net worth minus housing
http://www.census.gov/compendia/statab/ ... 2s0721.pdf
I can't reconcile Tables 720 and 721. What am I missing.
Debt is the difference. 720 = assets, 721 = net worth.
Ah, of course!

FWIW, here's some date on 401k assets.
http://www.usnews.com/usnews/biztech/ar ... 1k.age.htm
(I'm not sure if that includes IRAs, 403b's etc. Also it's 2007.)
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Re: What is the average net worth per household?

Post by BTDT »

market timer wrote:
These projections show that most baby boomers will be almost entirely dependent on their Social Security income after they stop working.

The median household is in for a world of hurt.
Should we consider many UAW/GM/FORD retirees in a hurt, because most of what they have 'asset wise' is in their lifetime 'pensions''?

This is a major reason I'm having a problem with the 'net worth' numbers game. Golden parachute type pensions are not considered as an asset, yet they may well equate to two to five million in equivalent annuities? I suspect a few Boglehead's might love to have a $150K government pension, adjusted for inflation each year per the CPI, along with full health care, versus a million in their 401k? How can a lifetime pension not be considered as one heck of an 'asset, albeit it does forgo the children's windfall?

FWIW. Yes, I took accounting and economics classes in college, and I know the classic definition of net worth and bankruptcy, but I can't help but think the playing field has changed. Lifetime pensions with guaranteed healthcare are fast being replaced by 401K's. That may lead us, or the 'saver', to think that he or she is rich, when in fact someone who worked a lifetime for the government, or on an automotive assembly line, is actually better off 'asset' wise. :oops:
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Re: What is the average net worth per household?

Post by lawman3966 »

jvclark02 wrote: Should we consider many UAW/GM/FORD retirees in a hurt, because most of what they have 'asset wise' is in their lifetime 'pensions''?

This is a major reason I'm having a problem with the 'net worth' numbers game. Golden parachute type pensions are not considered as an asset, yet they may well equate to two to five million in equivalent annuities? I suspect a few Boglehead's might love to have a $150K government pension, adjusted for inflation each year per the CPI, along with full health care, versus a million in their 401k? How can a lifetime pension not be considered as one heck of an 'asset, albeit it does forgo the children's windfall?
You make good points. People with pensions and privileged retiree health insurance are having their assets undercounted when counting only readily "lump sum" assets like stocks, bonds, home equity, and cash savings. Indeed people with benefits at the levels you refer to have little need for savings and investments in the Boglehead sense. However, the overwhelming majority of Americans don't have benefits anywhere close to those you refer to. Thus, I wonder whether the median is really changed by 10-15% of the population having the California-level pension and health plan benefits. One way to address this counting error, is to either (a) convert all assets to an income-type count (i.e. how much $ per year for life to you have)or (b) to convert the pension benefits into the lump sum needed to purchase an annuity that would yield the pension they're entitled to. The existence of two different wealth counting formats does not remove the need for people to assess their retirement readiness, especially if they're part of the majority who lack the nice govt benefit packages.

On the investment advice side of things, assuming we are speaking of the majority of the population who lack six-figure indexed pensions and free retiree health care, saving and investing remain vitally important. The sum total of one's home equity, retirement accounts, taxable savings, and social security benefits (yet another income-flow asset) are what people will live on between 60 or 65 and the end of life. I, for one, think that this "net worth" retains plenty of importance.

I've tried various approaches to combining my SS benefits with my "lump sum" assets to assess my readiness for retirement. One such approach follows:

One "careful" approach is to maximize SS benefits in later retirement so that I have an increased "minimum" level of income during retirement. I couple this with the expectation that I will start to spend less after age 80. I divide my retirement into two phases: (1) retirement age until 80; and (2) 80 onward. I also assume that I will spend my lump sum assets during phase (1) when I am more likely to be able to enjoy them.

Income for phase (1): [lump sum + 10 (years) * SS income starting at 70] DIV by [80-Retirement age] = income between retirement age and age 80. (Thus, lump sum assets are spent down reasonably quickly between retirement and age 70, and more slowly thereafter, once SS benefits are available).

Income for phase (2): SS benefits available at age 70, with any COLA adjustments for the 10 years up to age 80.

The "activity reduction" age of 80 could, of course, be changed. This is just one of many ways to combine defined-lump-sum assets with defined-income assets.
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Re: What is the average net worth per household?

Post by Valuethinker »

squirm wrote:I've been trying to find what the average net worth per household in the US is. I've seen the federal reserve report, but that takes into account home equity. I never count home equity as part of our net worth, our home is not an investment.

I'd like to also subtract out the retirement accounts. Essentially I guess I'd like to find out what the household net worth is on savings, investments and assets minus retirement and the primary home.

If anyone can point me or provide a link or has an idea, I'd appreciate it.
Since the underlying curve is left skewed with an incredible right tail

(in other words you have a few billionaires, and a lot with very little or nothing)

the arithmetic mean or average is virtually useless for analysis. This is not a Normal (Gaussian) Distribution.

You want the median wealth.
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Re: What is the average net worth per household?

Post by Fletch »

squirm wrote:I've been trying to find what the average net worth per household in the US is. I've seen the federal reserve report, but that takes into account home equity. I never count home equity as part of our net worth, our home is not an investment.

I'd like to also subtract out the retirement accounts. Essentially I guess I'd like to find out what the household net worth is on savings, investments and assets minus retirement and the primary home.
Should we include our household share of the national debt in our networth calculation? Would seem that somehow, either via increased taxes or inflation, we will be paying it. I'm not sure I've ever seen this subject addressed on the forum. Thanks.
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Re: What is the average net worth per household?

Post by richard »

Valuethinker wrote:Since the underlying curve is left skewed with an incredible right tail

(in other words you have a few billionaires, and a lot with very little or nothing)

the arithmetic mean or average is virtually useless for analysis. This is not a Normal (Gaussian) Distribution.

You want the median wealth.
See the numbers in the link I posted above. It shows both mean and median.
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Re: What is the average net worth per household?

Post by TN_INVEST »

The median # is going to be very small (might even be shocking). Lots of folks out there are living paycheck to paycheck (I know that's not net worth, but I think there's a correlation). I've read lots of studies about the average retiree having less than one year's worth of living expenses saved.

Seems home equity hovers around 15%-20%

Image


I'm going to go back to Dr. Stanley's rule of thumb for "wealthy"

(Age x income) divided by 10

If your net worth is greater than that, then you can consider yourself to be in limited company. Please don't get in a big pi$$ing match over this...it's pretty much right out of the book by Dr. Stanley, The Millionaire Next Door and he's merely trying to demonstrate the relationship between age and income rather than some arbitrary # (i.e.: I'm a millionaire).
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Re: What is the average net worth per household?

Post by Grt2bOutdoors »

I don't feel these government projections are accurate - how do they obtain their data? If by census or polling, how may participants are actually honest? Behaviorally speaking, how many folks do you know talk freely about finances? - in my social circle outside of this forum, it is like social taboo - people don't air their laundry or speak in mixed language as to not give an accurate picture of their finances. Even of those I know who are receiving pensions, they are not raking in 50 or 60K pensions, more like 1/3 of that amount coupled with Social Security and spousal Social Security is what keeps them afloat while allowing their assets to continue multiplying by not having to touch them.
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Re: What is the average net worth per household?

Post by mptfan »

Can anyone tell me what the average net worth per household is, excluding credit card debt, auto loans, and student loans? Oh, excluding mortgages too. I am just curious. Thanks. :wink:
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Re: What is the average net worth per household?

Post by Epsilon Delta »

Fletch wrote: Should we include our household share of the national debt in our networth calculation? Would seem that somehow, either via increased taxes or inflation, we will be paying it. I'm not sure I've ever seen this subject addressed on the forum. Thanks.
If you include the national debt you should also include the household share of the national assets.
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Re: What is the average net worth per household?

Post by dalerobk »

mptfan wrote:Can anyone tell me what the average net worth per household is, excluding credit card debt, auto loans, and student loans? Oh, excluding mortgages too. I am just curious. Thanks. :wink:
It's $117,692.48. I thought this was a well-known fact.
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Re: What is the average net worth per household?

Post by 555 »

TN_INVEST wrote:`Seems home equity hovers around 15%-20%' [of Household Net Worth]
That's the kind of statistic where the average is atypical.
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Re: What is the average net worth per household?

Post by itypefast »

I don't get this idea of not including your house in your net worth. If you own a house that can liquidate for $500k including fees and taxes and have no mortgage does this contribute nothing to your net worth? So let's now say that instead of paying cash for the same house you instead put $100,000 down, got a $400,000 mortgage and put that $400,000 in your Vanguard account. Does that contribute $400,000 to your net worth? It's after-tax investable assets, after all.

This just makes no sense to me. Net worth is net worth.
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Re: What is the average net worth per household?

Post by Anon1234 »

Lots of comments on the assets and liabilities (the numerator). But also consider the definition of a household (the denominator).

There are "tax units," which is based on those grouped for a tax return, and also "households" as defined by the CPS. They are quite different. Think, for example, about college students who would be part of a tax unit, but not part of a household. Roomates would be part of a household, but not part of a tax unit.
A household consists of all persons—related family members and all unrelated persons—who occupy a housing unit and have no other usual address. A house, an apartment, a group of rooms, or a single room is regarded as a housing unit when occupied or intended for occupancy as separate living quarters.
http://www.bls.gov/cps/eetech_methods.pdf

The difference between households and tax units has grown over time. Here's a podcast elaborating: http://www.econtalk.org/archives/2012/0 ... _on_t.html
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Re: What is the average net worth per household?

Post by Valuethinker »

richard wrote:
Valuethinker wrote:Since the underlying curve is left skewed with an incredible right tail

(in other words you have a few billionaires, and a lot with very little or nothing)

the arithmetic mean or average is virtually useless for analysis. This is not a Normal (Gaussian) Distribution.

You want the median wealth.
See the numbers in the link I posted above. It shows both mean and median.
Thank you. I lost my 'cc' but from memory the 2007 numbers were

550k average 120k median

It's the median number that matters for any sensible assessment of this.

We wouldn't call Russians 'rich' yet they have one of the highest concentrations of billionaires in the world.

Similarly there are a lot of rich Nigerians.
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Re: What is the average net worth per household?

Post by TN_INVEST »

Anon1234 wrote:There are "tax units," which is based on those grouped for a tax return, and also "households" as defined by the CPS. They are quite different. Think, for example, about college students who would be part of a tax unit, but not part of a household. Roomates would be part of a household, but not part of a tax unit.
Yes, and we must be clear about what the definition of "is", is. For instance, does the U.S. include territories, or just the 50 states? What about folks with dual citizenship and/or illegal aliens? Are we to include legal aliens and/or folks with work permits, but might be in the U.S., but not citizens? And what about citizens that are located outside the States, but pay taxes here? :confused :?: :oops: :happy :D :mrgreen:

I'm dizzy.

To be quite honest, I hardly care what other folks are doing. OK, as a concerned citizen, I would like to see my fellow Americans become more fiscally fit, but at the end of the day, I need to take care of my home and focus the lion's share of my energy and effort on making sure I'm doing what I need to do.

So, what is the real reason for the question at hand?
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Re: What is the average net worth per household?

Post by travellight »

thanks for that equation from Stanley, it is very interesting.
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Re: What is the average net worth per household?

Post by Fletch »

Epsilon Delta wrote:
Fletch wrote: Should we include our household share of the national debt in our networth calculation? Would seem that somehow, either via increased taxes or inflation, we will be paying it. I'm not sure I've ever seen this subject addressed on the forum. Thanks.
If you include the national debt you should also include the household share of the national assets.
Thanks for that idea. Wow! I looked up US national wealth per capita, we don't stack up so well. I did not see if this includes private as well as government owned assets; anyone know? I wanted to do a comparison of US government assets vs US government debt but I'm not sure I found the right data. This seemed to be private assets. Probably not relevant anyway since the government would likely not sell off their assets to pay down the debt.

Based on the following chart, I did not realize how low we were compared to many other developed countries.

http://en.wikipedia.org/wiki/National_wealth
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Re: What is the average net worth per household?

Post by johnkidding »

"72.8% of all statistics are made up on the spot" -- Me

"Anyone can make up a quote and post it on the internet" -- George Washington

:wink:
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Re: What is the average net worth per household?

Post by Khanmots »

itypefast wrote:I don't get this idea of not including your house in your net worth. If you own a house that can liquidate for $500k including fees and taxes and have no mortgage does this contribute nothing to your net worth? So let's now say that instead of paying cash for the same house you instead put $100,000 down, got a $400,000 mortgage and put that $400,000 in your Vanguard account. Does that contribute $400,000 to your net worth? It's after-tax investable assets, after all.

This just makes no sense to me. Net worth is net worth.
This.

Net worth is what I'd have if I liquidated everything and settled all debts. If I sold my house, my car, and everything else. If I took all future guaranteed income streams (Pensions and the like) and sold them for their PV. The pile of cash I'd wind up with is my net worth. Attempting to ignore any of it results in meaningless numbers.
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