Using income to define the middle class has one significant drawback: It doesn’t account for the assets a household has, such as real estate or investments. For example, many retired households have a high net worth but a modest household income. They don’t need a high income, because their homes and cars are often paid off, and they don’t need to save for retirement.
How Is Net Worth Calculated?
Net worth is a measurement of wealth: It is the total of all the assets a household owns minus all the debt it owes. Typical assets include:
Net home equity, which is your home’s resale value minus mortgages and selling costs Your car or truck’s resale value minus its outstanding loan valueFinancial assets, such as retirement account, savings, and cash The resale value of household items such as consumer electronics, jewelry, or art
Household debt includes large amounts like mortgages, auto loans, and student loans. It also includes medical debt and outstanding credit card debt.
How Is the Average Middle-Class Net Worth Calculated?
Several government agencies calculate and report on net worth. To understand these reports, you first need to understand what averages and quintiles mean.
Averages
As a practical matter, there are two types of “averages”: the median and the mean.
The median is the middle point in a range of statistics, sorted in order. For example, in the list of numbers 8, 10, 13, 20, 40, the median is the number 13 because it’s exactly in the middle of the five figures.The mean is determined by adding up the data set and dividing it by the number of statistics in it. For the same range, the mean is (8+10+13+20+40) / 5 = 91 / 5 = 18.2. This is the number we usually think of when we say “average.”
For U.S. wealth, the mean, or average, gives an inflated figure because of the concentration of wealth at the top of the range. As a result, the median provides a better sense of the actual American “average” than the mean does. According to U.S. Census data, the average net worth for U.S. households in 2019 (latest data available) was $445,900. The median net worth was $118,200. That’s a pretty big difference, and it shows how the concentration of wealth among the richest households can skew the mean.
Quintiles
The U.S. Census Bureau uses quintiles to further dive into the nation’s net worth. A quintile is one-fifth of a group, just like a quartile is one-fourth of a group. Dividing Americans into five income groups allows a more detailed look at the middle class. The bottom quintile tends to include younger households and those without much education. Younger groups have not really had a chance to accumulate wealth, and there is a positive correlation between levels of education and levels of wealth. The top quintile typically has a higher percentage of older households and those with the most education. The middle class is often defined as the middle three quintiles. Some further classify this group as lower-middle class, middle class, and upper-middle class. The table below shows the median net worth for these quintiles: Here’s a comparison of the median and mean net worth by age group:
Average Net Worth by Education
Education is highly correlated with net worth, as shown in the table below. Those without a high-school diploma only own about $5,090 in median net assets. A high-school diploma boosts that to $40,560. A bachelor’s degree quintuples that wealth to $196,800. An advanced degree doubles that to $408,700. The mean is given in the table below for comparison.
Racial Disparities and the Wealth Gap
Racial wealth disparities are most pronounced between White and Asian households, and Black, Latino, and Native-American households. The median net worth for White households is $150,300, while for Asian households it’s $206,400. For Black households, it’s $14,100. The net worth for Hispanic households is $31,700. For all others, it’s $37,850. The racial wealth gap also exists among Black people who are highly educated and come from two-parent homes. In a 2013 study by the Economic Policy Institute, the median wealth of Black families with graduate or professional degrees was $200,000 less than that of similarly educated White families. Similarly, two-parent Black households tend to have less wealth than single-parent White households. A McKinsey study found that this achievement gap has cost the U.S. economy more than all recessions. If there had been no achievement gap in the years between 1998 and 2008, U.S. gross domestic product (GDP) would have been $525 billion higher in 2008. Similarly, if low-income students had the same educational achievement as their wealthier peers over that same period, they would have added $670 billion in GDP.
