While I’m not a big proponent of dividing people by arbitrary classes, I think a better understanding of where you are financially can help you plan where you want to go. Understanding your Net Worth, specifically what the net worth means in terms of your financial bracket, is worthwhile. If nothing else, it will help you map out your future wealth-generating plans.
But how much net worth do you need to be in American society’s Upper, Middle, or Lower Class wealth brackets?
Well, we’re going to understand better what net worth is and how to determine which one equates to the various brackets. Before discussing the net worth of each social class, let’s define “Net Worth” and “Social Class.”
What is Net Worth?
A person’s net worth is the difference between the value of all their assets and the value of all their debts. You have a positive net worth if you have more assets than debts. It means you are on track to building your wealth. But if the number of your debts exceeds your assets, your net worth is negative, indicating a need to improve your financial life.
What is Social Class?
A “Class” is a group of people with different levels of power based on their social and economic status. Class and money are closely linked, but they are not the same. Your status is affected by your thoughts, beliefs, and expectations. However, these impressions can change as you get older.
In most societies, there are three main classes: the Upper, the Middle, and the Lower or Working Class. The U.S. Census Bureau uses Quintiles to learn about the country’s wealth. Like a Quartile, a Quintile is a measure of one-fifth of a group. If you divide Americans into five economic groups, you can better understand the Middle Class.
Types Of Social Class
The bottom wealth Quintile is the group with the least amount of money. The top wealth Quintile comprises the wealthiest 20% of households. Based on how the U.S. Census Bureau reports this data, I am going to share the net worth of the five social classes:
- The Poverty Class
- The Lower Middle Class
- The Middle Class
- The Upper Middle Class
- The Wealthy Class
#1 The Lower Class or Poverty Class
The Poverty Class has a median net worth of $6,300. In the U.S. Census Bureau’s poverty line for 2017, a person under the age of 65 with no children who makes less than $12,752 per year is below the poverty line. This number goes up as the family size increases.
At $24,858, a family of four with two children under 18 falls below the poverty line. The poverty level for two adults and two children without a mortgage in 2017 was $23,261, and for two adults and two children with a mortgage, it was $27,085.
But poverty can be defined in many ways. It is a misconception that lower-income people have a lower net worth. There are people whose income is above the poverty line but feel poor. On the other hand, some people with low income have more assets and fewer liabilities. But a Net Worth of $6,300 is very low.
Improving your Net Worth to move up from the Poverty Class would be best. You can reduce expenses, find side hustles, or take on your Debt more aggressively.
#2 The Middle Class
People often use the three Middle Quintiles to describe the Middle Class. This group is also called the Lower-Middle Class, the Middle Class, and the Upper-Middle Class. There is no one way to explain what “Middle Class” means. But most people in the middle class have moderate financial freedom. Moderate financial freedom means they still need to keep earning money to pay for expenses or buy assets.
Lower Middle Class
The first group in the Middle Class is the Lower Middle, which has a median net worth of $43,760. In a recent poll, 90% of Americans identified themselves as part of the middle class. The middle class in the U.S. is often more defined by their goals for a certain lifestyle than by their income or net worth.
For example, it’s the desire to own a car, a home, savings, health care, and retirement. A few things make up the middle class, but mostly it comes down to discretionary income. Discretionary Income is the money left after taxes are taken out. The more discretionary income you have, the further you move into the Middle Class. However, a high Net Worth but loads of Debt can stop you from improving your status.
The next group is the “Official Middle Class,” with a median net worth of $104,700. The average American tends to reach their first $100,000 in net worth in their early to mid-forties. Most people need more time and effort to build a six-figure Net Worth. But as I’ve mentioned before, when it comes to money, it is not how much you make that matters, but how much you keep.
Anyone can become a Millionaire with Good Saving and Investing Habits and enough time for their money to grow. Some people make $75,000 annually and retire as multi-millionaires by developing good financial habits. Income alone is not a cure-all. All it comes down to is saving more than you spend.
Upper Middle Class
The third Middle-Class group is the Upper Middle Class, with a median net worth of $211,800. When we think of the Upper Middle Class, we usually think of Doctors, Lawyers, people in Senior Management, and other White-Collar Professionals. However, this is usually based on income, and when we look at Net Worth, we see that this group can include more people.
A disciplined saver can easily work their way into this group. There’s no limit to what an Upper-Middle-Class person can do as long as it is reasonable.
#3 The Upper Class
In the U.S., only 1% to 3% of the people belong to the Upper Class. The Wealthy Class has a median net worth of $689,900. But a 65-year-old American has a median Net Worth of only $250,000.
Well, I’m sorry to be the bearer of bad news; most Americans aren’t very good at saving. If you saved just $125 a month from when you were 20 until you were 65, you could easily retire with almost $70,000. That’s just $125 a month. It’s not hard to do.
You can easily save and invest your way into this bracket over a lifetime or even just a couple of decades if you are a super saver, a high-income earner, or a combination of the two. But wealth depends on a person’s perspective, which is influenced by Location, Occupation, Community, and Family background. As a person enters maturity, these perceptions can change.
The Annual Schwab Study Reports
The Annual Schwab study shows that people are changing their ideas about Wealthy People. People who participated in the 2020 study said that a Net Worth of $2.6 Million was the threshold for wealth.
Amy Richardson, a certified Financial Advisor on Schwab’s Intelligent Portfolios Premium team, said that this change of perspective is because of factors like the Coronavirus outbreak and Price Inflation. She also added that “many rich people in our country are rich not because they make a lot of money but because they have assets like real estate or other investments that have done well.”
On the other hand, money pays for a person’s lifestyle and day-to-day costs. For some people, no money will be enough, and a few people with more money think of themselves as wealthy.
How does one move from one Social Class to another?
Experts say you should learn “how to manage your money and make smart financial decisions.” They say to Set Goals for your Net Worth that consider the possibilities found in successful people and your situation.
Your Net Worth is a key measure of how well off you are financially. Since it shows the difference between what you own and what you still owe, it tells you important things about your ability to pay off debts and keep assets for long-term living expenses, retirement, and estate planning.
Think of Net Worth this way: the more money you have, the more freedom you will have with your money. We can all agree that saying you’re in a specific class or bracket doesn’t mean anything about who you are. Everyone starts somewhere and is heading in either an upward or downward trajectory. That’s just how life works.