Net worth is one way to determine your current financial situation. To determine your net worth, add up the value of all of your assets and subtract all of your liabilities (debts.)
For people with successful investments, net worth is likely to be a nice large number. Others with liabilities like credit cards and student loan debt might not have the same result.
The idea of a "net worth" became popular in an age when people became fascinated by the success of the world's wealthiest people, Bill Gates in particular. But everyone has a net worth, and where you are in life goes a long way in explaining yours.
Mean vs. Median Net Worth
When discussing the average net worth of groups, however, it is important to know the difference between mean net worth and median net worth. One paints a far rosier picture than the other, and perhaps a more realistic one.
The mean net worth is the average net worth; the net worths of a group averaged into one. The median net worth is the value that is right in the middle of all of those numbers.
Median net worth is arguably the one that gives you a more realistic view of an age group's financial situation. If you were to average the net worth of every millennial in the U.S., you'd have to include that of Facebook (FB) - Get Report founder Mark Zuckerberg, age 34, who is currently worth $61.5 billion. That's probably going to skew the numbers higher for a 29-year-old struggling to make his next student loan payment.
The difference in the median and mean net worth varies by age. Here are the age ranges for net worth as reported by the U.S. Federal Reserve in their September 2017 bulletin presenting data on the change in family finances from 2013 to 2016.
Net Worth: Under Age 35
For American households with a head of household under the age of 35, the mean net worth in 2016 was $76,200. But the median net worth was just $11,100.
The 35 and under age group, which includes millennials and Gen Z, is burdened with the most education debt in the country. It is a major liability that is subtracted when determining net worth, and the interest rates on those debts from year to year can often mean the liability does not decrease.
Many Americans at this age and early into their careers don't have the assets older Americans do. They usually rent instead of own a home. They often don't have the salary to make investments. Without a major asset like home equity, the only asset many have is savings. That's why the median net worth for this age range is low.
Net Worth: Ages 35-44
If the head of a household is between the ages of 35-44, the mean net worth is $288,700. The median, however, is $59,800.
There are a lot of reasons so many in this range still cannot reach a net worth of six digits. This is another age group that is saddled with incredible debt related to education.
Although they may be making enough at their job to purchase a home, mortgage is a liability, and a home may need refurbishing before equity can increase in a way that would dramatically enhance a person or family's net worth. New families may have childcare costs. Credit card debt could be piling up.
Net Worth: Ages 45-54
The mean net worth for the 45-54 age range, per the Federal Reserve, is $727,500. The median net worth is $124,200.
A head of household in this age group usually has a higher salary. Perhaps they've been promoted or moved to a new company. Assets are growing. They may be increasing equity in their home, and many may be choosing to expand or begin an investment portfolio. They may even invest in real estate beyond their home.
It is recommended that people begin saving for their retirement as early as possible in their career. People who save early see the benefits decades later as their savings - and net worth as a result - increase.
Net Worth: Ages 55-65
In this age range, the mean net worth is $1,167,400. The median net worth is $187,300.
At this point in their lives, many working Americans have been putting money into retirement for a few decades, and earning interest. That number continues to rise, especially when those in their 50s begin to allocate more income toward saving for retirement.
Their children are likely grown up and moved out, which means no more childcare costs. Perhaps their investment portfolio is paying off brilliantly. At this point, it's all likely going toward one thing: retirement.
Net Worth: Ages 65-74
The 65-74 age range is a little different. The mean net worth here actually drops a bit to $1,066,000. The median net worth is higher than the other age groups: $224,100.
Why does the mean net worth go down but the median go up? Simple. The wealthiest here can actually afford to retire - so they do. No longer putting money way for retirement, they are now using it for living expenses.
Unfortunately, those that don't have a net worth in the millions often still have to work into their 70s in order to afford retirement. They continue to put money away. If they still have an investment portfolio and a house, hopefully, it's still increasing in value and getting them closer and closer to a retirement goal.
Net Worth: Ages 75 and Up
Households in which the head is 75 or older have roughly the same mean net worth as the previous age range, $1,067,000. The median net worth is $264,800.
Ideally, in this age range, the head of the household is retired, which is why the mean net worth is so similar to the age 65-74 range. But in the wake of economic disasters like the 2008 Great Recession, many people's savings were wiped out in the subprime mortgage crisis. One devastating result of that is many older Americans are forced to keep working into their retirement years.
What Else Affects Net Worth?
Age is far from the only thing that can affect a household's net worth. Though student loan debt can be a burden in these times, Fed data suggests that education plays a massive role in net worth. In 2016, the median net worth for households in which the head completed a college degree was $292,100. For a head of household with no high school diploma, the median net worth was just $22,800.
Homeowners have an asset that makes their net worth significantly higher than those who do not own homes. Americans who don't own homes have a mean net worth of $91,100, but a median of just $5,200. Households who still rent not only don't have the equity of a home but also often have debt that precludes them from being able to afford a mortgage. Homeowners have a mean net worth of $1,034,200 and a median net worth of $231,400.
Calculating Net Worth
The equation required to calculate net worth is simple. It's finding everything needed for the equation that's hard.
Net worth is the value of your assets minus your liabilities. If you have a lot of assets or liabilities, you've got quite a few additional calculations to make before you can really determine your net worth. Have you accounted for every last debt you owe? What's the current value of your house? When was the last time you checked how much is in your savings account?
Increasing Net Worth
Let's say you do all the calculations and find out your net worth is lacking, at least compared to where you want it to be. How do you begin to increase your net worth?
It's easy to feel trapped. Tremendous debt and the inconsistencies of a gig economy can leave you feeling hopeless about your financial future. And advice like "pay your debts" can sound condescending.
Still, even in times of economic difficulties, there are ways, even small ones, to boost your net worth. There are options for investing your money that doesn't involve thousand-dollar investments. If you can swing it, perhaps start adding a little more into your savings or retirement account, where it can accrue interest. If you're not sure where to begin, talking with a financial adviser or using a robo adviser can also be a good start on a plan to increase your net worth.