Friday Finance – are you rich?

^{“Darling, I can’t even afford an iPhone.” Source}

As Thomas Sowell says, questions like the one in the title are meaningless unless you add, Compared to what?” Are we comparing ourselves to Congolese farmers or to the Bohemian Club?

So here we go: Are you rich compared to your same-age peers in the United States? That’s specific enough.

Before you read on, guess what percentile you’ll fall into. Got it? Alright, let’s have a look.

Business Insider has a handy article showing the minimum net worth required to be part of the top 50%, 20% and 10% of US households. I’ve transferred these into a simple list so you can peruse in an instant:

Age 18-25

50%: $4,000. 20%: $22,750. 10%: 65,510.

Age 26-30

50%: $12,000. 20%: $82,500. 10%: $142,710.

Age 31-35

50%: $30,500. 20%: $144,950. 10%: 259,780.

Age 36-40

50%: $47,000. 20%: $218,400. 10%: $464,100

Age 41-45

50%: $85,600. 20%: $379,000. 10%: $721,800

Age 46-50

50%: $131,900. 20%: 546,600. 10%: $1,224,500

Age 51-55

50%: $188,250. 20%: $998,100. 10%: $2,456,300

For older ages, these amounts plateau then gradually decline. See the original article for details.

Here’s a more specific net worth comparison calculator where you can enter your exact age and compare various factors with your same-wealth peers.

How did you go?

I’m guessing that most of my readers found out that they are richer than they thought. I bet quite a few are bewildered to find themselves in the top 20% and almost all are in the top 50%. How did that happen?

We must keep in mind that many households have no wealth. They live paycheck to paycheck and lack even a basic emergency fund.

There are also many households with a negative net worth, i.e. more debt than savings and assets. This is becoming increasingly common with younger people struggling with student debt and some older people retiring without having paid off the mortgage.

If you could compare yourself only to those who are debt-free and have some savings, you’d likely slip from the top 20% to around the median. This is my estimate – I have no figures to back it up.

For the young, simply being debt-free and having a modest rainy day fund puts you in the elite. For older people, being roughly on-track with your retirement savings is enough to be in the top half. Which is a problem for the other half given the trouble many countries face in funding their social security entitlements.

That my readers are in the higher percentiles is no coincidence. Do you think people who live on credit read the Friday Finance series?

This is not to say that everyone in the lower percentiles deserves their fate. The truth about such things is always marginal – some were tricked into massive student loans when they were far too young to know any better, while some suffered enormous medical bills or other misfortune. Plenty more drove themselves into debt by spending more than they earn.

Do not assume that those in the lower wealth percentiles all have low incomes. Some have high incomes but spend more than they earn, while some savers manage to spend less than their more modest income.

We do not have complete control over our finances and fortunes, but we do have quite a lot. For any readers out there under 35 or so, if you follow the 10 steps to financial freedom you’ll almost certainly reach the top 20% in net wealth so long as you have a steady, medium income.

• This article provides general information. It does not take into account your personal circumstances and is not intended to influence readers’ financial decisions. Get your own, professional advice.

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