Let’s say that your neighbor is a surgeon that makes $250,000 a year. Does that mean he or she is rich?
The answer is “no” – and it turns out that the actual statistical relationship between income and wealth is surprisingly low.
Graphing Income and Wealth
The folks at Don’t Quit Your Day Job did an analysis of federal data on income and net worth, and the results can be summarized with this visualization:
The X axis shows annual income, and the Y axis shows net worth. It’s also worth noting that both scales are logarithmic, so they the intervals increase by a factor of 10x.
The above data has some correlation, but it’s not as much as you’d likely think.
The R-squared value, a measure used to express the relationship between two sets of data, is only 33%. In other words, one variable only helps to “explain” the other about a third of the time, which suggests just a partial relationship between income and net worth.
Although this minimal relationship may seem counterintuitive to some people, it all makes more sense when you consider that income is just one factor that could contribute to overall net worth. Income is important, but spending habits, savings, and investments are also important to building wealth over time.
The Age and Experience Factor
Now, here’s the really interesting part: income is a better predictor for the wealth of people in certain age groups, and a worse predictor for others.
Here’s another chart from DQYDJ:
For younger people, there seems to be hardly any relationship between income and wealth. Later on, in the late-30s, the relationship seems to peak. During this age period, income is actually a very good predictor of someone’s net worth.
Finally, from there, the relationship seems to decrease over time. The older you get, the less likely income is a useful predictor of actual wealth.
This makes sense for a variety of reasons, but perhaps one of the more important one is how that money is spent. People that are disciplined savers and smart investors will increase their net worth over time, regardless of their income.
Mapped: The Salary You Need to Buy a Home in 50 U.S. Cities
Is owning a home still realistic? This map lays out the salary you’d need to buy a home in 50 different U.S. metro areas.
This is the Salary You Need to Buy a Home in 50 U.S. Cities
Depending on where you live, owning a home may seem like a far off dream or it could be fairly realistic. In New York City, for example, a person needs to be making at least six figures to buy a home, but in Cleveland you could do it with just over $45,000 a year.
This visual, using data from Home Sweet Home, maps out the annual salary you’d need for home ownership in 50 different U.S. cities.
Note: The map above refers to entire metro areas and uses Q1 2022 data on median home prices. The necessary salary was calculated by the source, looking at the base cost of principal, interest, property tax, and homeowner’s insurance.
Home Ownership Across the U.S.
San Jose is by far the most expensive city when it comes to purchasing a home. A person would need to earn over $330,000 annually to pay off the mortgage at a monthly rate of $7,718.
Here’s a closer look at the numbers:
|Rank||Metro Area||Median Home Price||Salary Needed|
|#7||New York City||$578,100||$129,459|
|#15||Salt Lake City||$556,900||$100,970|
Perhaps surprisingly, Boston residents need slightly higher earnings than New Yorkers to buy a home. The same is also true in Seattle and Los Angeles. Meanwhile, some of the cheapest cities to start buying up real estate in are Oklahoma City and Cleveland.
As of April, the rate of home ownership in the U.S. is 65%. This number represents the share of homes that are occupied by the owner, rather than rented out or vacant.
The American Dream Home
As of the time of this data (Q1 2022), the national yearly fixed mortgage rate sat at 4% and median home price at $368,200. This put the salary needed to buy a home at almost $76,000—the median national household income falls almost $9,000 below that.
But what kind of homes are people looking to purchase? Depending on where you live the type of home and square footage you can get will be very different.
In New York City, for example, there are fairly few stand-alone, single-family houses in the traditional sense—only around 4,000 are ever on the market. People in the Big Apple tend to buy condominiums or multi-family units.
Additionally, if you’re looking for luxury, not even seven figures will get you much in the big cities. In Miami, a million dollars will only buy you 833 square feet of prime real estate.
One thing is for sure: the typical American dream home of the big house with a yard and white picket fence is more attainable in smaller metro areas with ample suburbs.
Buying vs. Renting
The U.S. median household income is $67,500, meaning that today the typical family could only afford a home in about 15 of the 50 metro areas highlighted above, including New Orleans, Buffalo, and Indianapolis.
With the income gap widening in the U.S., the rental market remains a more attractive option for many, especially as prices are finally tapering off. The national median rent price was down nearly 3% from June to July for two-bedroom apartments.
At the end of the day, buying a home can be an important investment and may provide a sense of security, but it will be much easier to do in certain types of cities.
What Does It Take To Be Wealthy in America?
This infographic visualizes several net worth milestones to give you a better idea of where you stand today.
What Does it Take to be Wealthy in America?
The goalposts of wealth are always shifting due to inflation and other factors.
For example, someone with a net worth of $1 million several decades ago would have been considered very wealthy. According to recent survey results, however, $1 million is only enough to feel “financially comfortable” today.
In this infographic, we’ve visualized several money milestones to give you a better idea of what it really takes to be wealthy in America.
Net Worth Milestones
This table lists the data used in the above infographic.
It covers data on what it takes to get into the top one percent for wealth in key states, along with broader survey results about what net worth thresholds must be crossed in order to be considered “comfortable financially” or even “wealthy”.
|Milestone||Source||As of Date||Net Worth (USD)|
|What it takes to be in California’s top 1%||Windfall||2020||$6.8M|
|What it takes to be in America’s top 1%||Knight Frank||2021||$4.4M|
|What it takes to be in New York’s top 1%||Windfall||2020||$4.2M|
|What it takes to be wealthy in America||Charles Schwab survey||2022||$2.2M|
|What it takes to be in the UK’s top 1%||Knight Frank||2021||$1.8M|
|What it takes to be financially comfortable in America||Charles Schwab survey||2022||$774,000|
|What it takes to be in Mississippi’s top 1%||Windfall||2020||$766,000|
|The average American’s net worth (median)||Federal Reserve||2019||$122,000|
According to Charles Schwab’s Modern Wealth Survey, a net worth of $774,000 is needed to feel “financially comfortable”, while $2.2 million is needed to be considered “wealthy”.
Both of these milestones are far greater than the average (median) American’s wealth, which according to the Federal Reserve, was $122,000 in 2019.
Joining the One Percent
Research by Knight Frank determined that in order to be a member of America’s one percent, one would need a net worth of $4.4 million. This is very high compared to other developed countries such as Japan ($1.5 million), the UK ($1.8 million), and Australia ($2.8 million).
The difference is partly due to America’s large population of ultra high net worth individuals, which includes the country’s 724 billionaires. See below for a list of the top five countries by number of billionaires.
|Country||Number of Billionaires|
|🇨🇳 China (inc. Hong Kong & Macau)||698|
Source: World Population Review (As of 2021)
Focusing again on the U.S., we can also see large discrepancies at the individual state level. Entry into California’s one percent requires a net worth of $6.8 million, which is 62% higher than the national average.
California is famously home to many of the world’s richest people, including Google co-founder Larry Page, and Facebook founder Mark Zuckerberg.
Being a one percenter in Mississippi, on the other hand, requires $766,000. That’s 83% lower than the national average, and just a tad lower than the amount needed to be “financially comfortable” by the average American. This is partially due to Mississippi’s poverty rate of 19.6%, which according to the U.S. Census Bureau, is the highest in the country.
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