Americans Have Low Net Worths

After posting Americans Have Way Too Much Credit Card Debt, here's another set of facts that show the average American isn't very good with money.

Time lists the average net worths of Americans by age as follows:

• Less than 35 years old: $6,676
• 35-44 years old: $35,000
• 45-54 years old: $84,542
• 55-64 years old: $143,964
• 65-69 years old: $194,226
• 70-74 years old: $181,078
• 65 years old and older: $155,734

Not great numbers.

But wait, it gets worse.

Here are the net worth numbers excluding home equity:

• Less than 35 years old: $4,151
• 35-44 years old: $14,226
• 45-54 years old: $25,005
• 55-64 years old: $45,447
• 65-69 years old: $43,921
• 70-74 years old: $31,823
• 65 years old and older: $20,366

So when you look at it, Americans have saved very little once the value of their homes is excluded.

That's not good for retirement.

Here's Time's commentary on this situation:

"Generally, the rule of thumb is that retirees should plan on tapping retirement saving to the tune of 4% annually. However, following that advice means that if you’re retiring with a $100,000 retirement nest egg, you’ll only be taking out $4,000 per year. If you combine that income with Social Security income — the average retiree receives $1,333 per month — then you’re talking about less than $20,000 per year in income. That’s unlikely to be enough to live on."

Uh, yeah.

Again, not a shocker that it's bad news.

Overall, Americans need to live within their means and widen the gap between income and savings. Then they need to invest the gap so it grows into a substantial asset base. Those few steps would go a long way to correcting the disturbing numbers shown above.

Comments

[cmadler]

I suspect that student loans are a major drag on the net worth of people under 40 (and that age will move higher as the generation that has taken out substantial loans for higher education gets older).

[Josh Stein]

I can tell you mine's not good - we're working on it, but it's not good. Goal is to be breakeven by mid-year 2017 (e.g., June 30). We're making good progress, but we have a long way to go on that front.

[Apex]

With the pervasive expansion of easy credit Americans have been trained to buy now and pay later. Savings is not a priority of our credit based society.

There are generally 4 ways to exact a change in people's behavior:

1. Fear
2. Reward
3. Persuasion
4. Coercion

1. Fear

We just came through the Great Recession. Unlike the Great Depression, this economic downturn didn't create enough panic to really scare people. It did for a little while but there were enough safety nets and even with tightening credit, enough options for people to not get scared enough to make any real changes. Some fear didn't do the trick. Huge fear might but that would require catastrophic economic impacts that no one wants, and I am not even convinced that would have lasting impacts in an age when the path out the other side will still likely be to leverage more credit.

2. Reward

Many people have employer based 401-k's with matching funds. That has been around for decades. But that isn't improving much for most people either. Rewards of free money isn't fixing the problem.

3. Persuasion

There are countless books and blogs just like this one giving people sound financial advice. It only helps those who are seeking, open to changing their money habits, and willing to be disciplined about it. Those who need to change the most are often the most difficult to persuade because it will require changes to a lifestyle they are unwilling to give up. Persuasion is a blunt tool when facing the unwilling masses.

4. Coercion

Which leaves us with the only remaining option and likely the only thing that would improve these numbers, namely coercion.

A phased in government forced savings program that required deductions from pay checks to go into IRA type accounts has already been proposed in Congress. Very few will want such a program. But it would work. And I would bet large sums of my own net worth that nothing else in the next 20 years will make a dent.

I am not advocating for or against such a program. Just stating what I believe recent history has shown to be very obvious with respect to the vast majority of Americans' ability to manage their own retirement prospects in our just-in-time society.

[FMF]

@Apex

I agree:

1. Most people will not want it.

2. It would work.

[Charles Dale]

Please send me the URL to your new site. Thanks!

[sms114]

Hard to believe - I started saving for retirement at the age of 22 when I started my first job with a major corporation.

[sms114]

Please send me your new URL. Thanks!

[Anon]

I'm glad to see you're back. I used to read here regularly, but had stopped when you stopped posting.

Can you send the URL of the new site?