How the things we own vary at different levels of net worth

Do people at different levels of wealth spend their money on different things? Of course they do.

Some of these differences are by necessity, of course. If you have a million dollars in net worth, for example, then even average spending on your weekly meals will make up a much smaller portion of your net worth than the same spending would for somebody who has a net worth of $10,000.

(To put it another way: If you have two families that both spend $100 per week on food, but one family has a net worth of $1,000,000 and the other family has a net worth of $10,000, then the wealthier family spends less than one-tenth of one percent of its wealth each week on food while the poorer family spends one percent of its wealth.)

To illustrate how people at different levels of wealth allocate their money differently, the folks at Visual Capitalist have collated data from the Federal Reserve's 2016 Survey of Consumer Finances to create this chart. (Click image to open full-size version in new window. Or visit Visual Capitalist for more info.)

Assets based on net worth

The chart divides Americans into six groups based on net worth. For each group, it shows how much of this wealth is in various assets, such as cash, housing, and cars.

Most of the info here is unsurprising. At lower levels of wealth, certain assets make up a disproportionate amount of a person's net worth. Basic housing, for instance, is by far the most important asset for folks with less than $1,000,000 in net worth.

There are, however, a couple of things that stood out.

  • First, look at the value of vehicles as a percentage of net worth. For folks under $100,000 in net worth, vehicles make up almost as much wealth as housing. Holy cats! This is insane — and in a bad way. Cars are a depreciating asset. In fact, they depreciate quickly. If you're piling much of what you own into the value of a vehicle, you're basically throwing money away. From my experience, the wealthiest people I know drive the least-valuable cars. Coincidence or cause? You make the call.
  • As net worth increases, business interests make up a greater percentage of wealth. I guess this makes sense, but it's nothing I would have ever thought about. Not all of the wealthy people I know own businesses, but a greater percentage do than the folks I know who are poor. Not sure which is the chicken and which the egg in this scenario, though. Do people who own businesses build wealth? Or do people with wealth invest in businesses? Or both?

Inspired by this, I tried to create my own bar graph in Microsoft Excel. I failed. I did, however, make a “doughnut chart” using the same color scheme as the Visual Capitalist chart.

My Net Worth (% of Assets)

I was surprised to see that my asset distribution — representing a net worth of roughly $1.6 million — is very similar to the asset distribution for the millionaires in the chart above.

Where there are differences (the average millionaire has more non-residence real estate than I do), it's because of the way I've classified things. A huge chunk of my retirement mone is in REITs, for instance, which are like mutual funds for real estate. In other words, I do have about the same amount of money in real estate as the average millionaire but I didn't call it out that way.

Another point of interest: My net worth contains less liquid cash than other folks at a similar level of wealth. And believe me, I feel it. It sucks. The older I get, the more I understand why it's important to keep at least some cash readily available in bank accounts so you don't always have to be selling mutual funds to generate working capital.

I'm not sure there's anything actionable to be gained from this info, but it's interesting to look at.

More about...Economics

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Jason@WinningPersonalFinance
2 years ago

Interesting analysis. I’m slacking on business interests myself. I’m assuming my newish blog that’s not making any money yet is not worth anything. Maybe one day that will change.

Jon
Jon
2 years ago

Seems pretty obvious that people are not wealthy unless they build businesses. Granted, that could be a pretty broad category, but seems seems to me to be a pretty well establish fact that: -People who are poor use their time to earn money to pay their costs. -People who are middle class use their time to earn money to pay their costs and use their surplus money to sustain value. -People who are wealthy use there time to figure out how to use other people’s money to pay their costs and use their surplus to increase value. (aka business) To… Read more »

Steve
Steve
2 years ago
Reply to  Jon

According to the chart you can definitely reach $1 million with the “middle class” strategy. Who knows between $1 and $10m, but, even the $10m group only has an average of, what, 40 or 50% in business interests and real estate? Does that mean you can get to 50% of $10m, i.e. $5m, with the middle class strategy? Maybe.

Steve
Steve
2 years ago
Reply to  Jon

Of course it’s going to be really hard to get to $1B without some kind of leverage / founding a business / etc. Even the highest paid sports stars would have to invest their sports earnings in something that would grow it. That said – if your goal is to become a billionaire, in my humble opinion you should choose a new goal.

freebird
freebird
2 years ago
Reply to  Jon

Maybe I’m not typical but I’ve reached high seven figures without ever having been involved in a private business. My whole career has been working for companies, and all my investments were financed by personal savings, I’ve never paid interest in my life. I think owning shares of stock or mutual funds is just like owning a business except you’ve hired someone else to manage it for you. Many landlords do this too. One quibble I have with these comparisons is when wealth gets conflated with income/expenses. People with zero or negative net worth eat too, it’s an expense that’s… Read more »

Mark
Mark
2 years ago

Interesting post. I am interested in your comments at the end regarding how much you should have in cash when retired. That could make for an interesting topic.

For example, our financial planner suggested that we have 2-3 years of living expenses in cash in retirement. Seems like a lot, but I can see both sides. On the positive side, we wouldn’t be forced to sell assets during a downturn. On the negative side, that could be a lot of money that is not doing much work for us (e.g., in a savings account, CD ladder, etc.).

VinTek
VinTek
2 years ago

The charts are screwy. I don’t really expect anyone with a net worth of $10K to have ANY of their net worth in a primary residence. Who in the world has less than $10K of equity? Those guys are renters.

I also view your own personal chart with a raised eyebrow. Remember, the chart is about NET worth. Assuming your net worth is $1.6M, you put $448K into your down payment?

Michael
Michael
2 years ago
Reply to  VinTek

So if you read the bottom it involves all between 10k and 99k. So there is probably some higher net worth. Also I wonder how they treated married folks? Like sometimes the amount is different one person makes a ton while the other makes a lot lower. I could see it as some of it is because you earn that much you buy a home which is also included in assets.

Bob
Bob
2 years ago
Reply to  VinTek

I think its certainly possible and very likely in fact at that spectrum. They could have bought property on a FHA loan which only requires a tiny down payment so very little equity. Any equity they have may be cancelled out by large amounts of revolving and housing/car debt.

Most importantly, keep in mind that this is a measure of net worth, not income. These could easily be people on 7 figure salaries that spend every dime they make and then some on a house and car they shouldn’t have.

JoeHx
JoeHx
2 years ago

I think next time I figure out my net worth (which I do every month) I want to get a more complete picture. Normally I don’t include the things you do – especially housing and vehicles.

Also, I’m not sure which would be a better presentation of net worth – a donut / pie chart like the on you used in this post, or a bar chart like the one you wanted to use. Perhaps a stacked bar chart?

Steveark
Steveark
2 years ago

My housing is really pretty low at 5.6% and that is paid for, no mortgage. Cars are also pretty low at 1%. Everything else is stocks, bonds, alternatives and cash. No business interests.

That is one great thing about living in flyover country, geoarbitrage is automatic when it comes to houses, they are cheap here. My house is big, on two acres eight minutes from where I worked when I worked, but cost very little.

Steve
Steve
2 years ago

Did the chart maker address if there is a correlation between age and net worth? Maybe starting out, n.w. 10k, it’s mostly in the car you use to get to work?

Amanda V
Amanda V
2 years ago

7% of my net worth is in business interests, but that is only because I work for an employee owned company and we get issued stock every year as part on our salary. My guess is that a lot of high-earners get paid in company stock and that is why the chart is so skewed. You don’t necessarily have to be a business owner to get up to a high net worth…

Katherine Keller
Katherine Keller
2 years ago

“For folks under $100,000 in net worth, vehicles make up almost as much wealth as housing. Holy cats! This is insane — and in a bad way. Cars are a depreciating asset. In fact, they depreciate quickly. If you’re piling much of what you own into the value of a vehicle, you’re basically throwing money away.” This can also be explained by the fact that if you’re worth $10k, it doesn’t take much of a car to represent a substantial portion of your net worth. I have a friend on disability who drives a ’98 Sentra, which is probably still… Read more »

Dean N
Dean N
2 years ago

I really like the visual. If you read the note, the $10k bar is $10k-99k, so $10k is a terrible axis title and $55k is a more accurate label. I read it more like a timeline – as you go from $55k to $550k net worth, most of that growth comes from your primary residence. Then as you go from $550k to $5.5 M net worth, most of that growth (and all subsequent growth) comes from business investments. A very useful extension would be including the negative net worth. I’d argue the hardest part of getting rich slowly is going… Read more »

Franklin Bach
Franklin Bach
2 years ago

I’ll disagree that “daily driver”vehicles should not be part of one’s net worth calcs because the value at the end of the day is only what someone will pay for it, not what KBB reports. There will always be a gap. Perhaps you experienced this with your recent mini purchase. Could you sell it for the same you paid for it? Would you? As for the liquid portion in your chart (well done on the chart by the way), what’s the percentage range of cash on hand one should strive for? 1% seems inconveniently low as you point out. 25%… Read more »

Michael
Michael
2 years ago
Reply to  Franklin Bach

I dont know this is largely personal on how risk adverse you want to be. The more liquid the more you get hurt by inflation. Though if it is short term its not bad. At the very min I would keep in a cd or go to an online bank that overs at least above 1%. That way your not earning .01% at traditional banks.

lmoot
lmoot
2 years ago

Regarding the under $100k, more networth in cars than property…I’d imagine people under $100k are less likely to own real estate, and paying rent doesn’t add to net worth, nor does the value of a rental property (for the tenant). So it stands to reason that the most valuable thing they own is a car. Until they earn/ save enough to put into savings or buy a house if that’s the wish. And since most people in that range likely have car notes, their wealth is going into paying off the car, which only increases the percentage of networth occupied… Read more »

Michael
Michael
2 years ago
Reply to  lmoot

It could also be both like if you are not making that much and at 10k your car is a majority asset. If your low net-worth but a high earner you could buy a nice new car.

Lady Dividend
Lady Dividend
2 years ago

Only 2% for your car. Mine is zero since I don’t have a car. This chart is giving me ideas for how to diversity my asset classes.

Teress S.
Teress S.
2 years ago

This was an interesting exercise in both how mine and my husband’s numbers differed from those in the chart and in how clearly our numbers align with our priorities.

Our breakdown: Retirement ~70%; Taxable Mutual Funds ~12%; 529/ESA ~10%; Home Equity ~5%; Everything Else ~3%.

Sam
Sam
2 years ago

Are the forums coming back? I miss my forum friends. I think one of the best things I learned along the way, from my parents, from Dave Ramsey, from the Millionaire Next Door, etc. was not to put too much money into cars. I’ve had 4 cars in my life and on average I’ve kept them each 7.5 years. Out of the 4 cars, only one was new and it was really my worst car and stupidest car purchase. The average length of ownership for a used car in the USA is 5.5 years (6.5 for new) so I’ve bested… Read more »

Jennifer
Jennifer
2 years ago
Reply to  J.D. Roth

Yes, please!

Sam
Sam
2 years ago
Reply to  J.D. Roth

Ugh, start from scratch? That would make me sad, I love looking back at my debt killing posts from 2007 which were or are on the forum.

Joe
Joe
2 years ago

You probably should put REITs in real estate investment.
I’ll do this later today. Our primary residence is just a smaller percentage of our net worth. That’s probably the big difference from the chart.

S.G.
S.G.
2 years ago

This would be amazing as an animation. Get on that JD. ;P

S.G.
S.G.
2 years ago

Interesting. I admit to some curiosity why retirement and passive investments would be treated as different categories. Especially while the IRA and Pension are the same. The IRA seems to have more in common with mutual funds and stocks than with a pension. I think if you start parsing those differently I wouldn’t be too different from the average. I am always interested in how this analysis calculates the dollar value of pensions for net worth purposes. I have a relatively significant pension that is, I believe, more secure than average. But if I left my job I have no… Read more »

WantNotToWantNot
WantNotToWantNot
2 years ago

https://www.nytimes.com/2017/02/19/your-money/where-the-worlds-wealthiest-invest-their-billions.html

This article from The New York Times last February brought me up short. I was particularly struck by how much cash Billionaires hold. Probably it’s cash-flow for businesses, was how I read it, although it also might signal some risk-aversion. This year (since I am long since FI but still working for fun and seven years away from RMDs), I’ve shifted some of our post-tax froth to a ladder of CDs, allowing us to keep up with inflation but providing post-tax income should we need it in the years ahead.

Great post, J.D.

T
T
2 years ago

When I read your article, particularly about automotive costs, I thought “Yea! That is pretty ridiculous!” and thought about the folks I’ve seen living in trailers with brand new mustangs alongside. Then i figured it must have something to do with 40 years ago you coudl buy a new car with your savings from a few years of work living reasonably but the cost of living exceeding the wages plus increased car costs made that untennable but still locked in the collective mindset. Then I really thought about it. I started thinking about how my wife and my money plays… Read more »

Melfire
Melfire
2 years ago

Interesting side note: I calculated that my friends (or the average person i know) indulges in a smart phone every 2 years (approx 2k) and a new car every 5-8 years years (average 25k). That means we are spending roughly 10k on phones, and 25-50k on cars every 10 years. I’m starting to see why it’s taking millennials longer to get that house deposit saved (speaking for the Aus housing market here).

T
T
2 years ago
Reply to  Melfire

The Australian cell phone market is bizarre. Do you have a Cellphone import tariff that is fleecing you or is there that little market competition?

Even the iPhone X bought direct from Apple only costs $1200 USD for the 256gb unlocked version and that’s considered overprice here by normal people. A normal smart phone in the US is $500.

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