The Federal Reserve recently released its largest wealth survey report in a decade, analyzing the financial conditions of American households. In this extensive survey, thousands of families across the United States were interviewed about their bank accounts, assets, loans, and businesses. The findings revealed a comprehensive growth in net worth among all income levels, except for the lowest tier.
Net worth is defined as the total assets owned minus any debts owed. For 2022, the median threshold to join the top 20% of households was set at $609,000. According to the most recent data, entering the top 25% now requires a net worth of $812,800.
Humphrey Yang, a personal finance expert and former financial advisor, analyzed the wealth tiers in the U.S. on his YouTube channel, providing insights and advice for individuals at each level.
Households with a net worth below $27,900 are classified as belonging to the lowest tier. The median net worth of these households is about $1,700, a significant drop from $3,800 in 2022—a decline of 55%, indicating a worsening financial situation for these families.
Typically, the lowest 25% includes young families just starting out, many of whom are renters. These households often find themselves in difficult circumstances due to unexpected emergencies such as unemployment, significant medical expenses, or divorce. Others in this demographic tend to work in low-paying, manual labor jobs, including positions such as cleaners, parking attendants, or part-time clerical workers.
The Federal Reserve’s data indicates hidden signs of stress within this group: car ownership rates have dipped to 59% among the lowest-income households, the lowest level in two decades. There has also been a slight uptick in the use of payday loans, which are short-term, high-interest loans meant to cover expenses until the next payday. Additionally, 12% of households carry unpaid balances under “buy now, pay later” plans, up from 7% three years ago.
For individuals in this financial bracket, Yang offers four key pieces of advice. Firstly, it is crucial to pay off high-interest debts like credit card balances as soon as possible. Secondly, before taking any other actions, establishing an emergency fund for unexpected large bills is essential. His third piece of advice is to avoid buy now, pay later schemes; if you cannot afford to pay in full, it’s wiser not to make the purchase. Finally, he emphasizes the importance of maintaining a positive mindset and fostering constructive habits, encouraging individuals to steadily work toward their financial goals.
The next tier comprises those in the 25th to 50th percentiles, often regarded as the starting point of the middle class, sometimes referred to as the lower middle class. If a household’s net worth falls between $27,900 and $215,900, it is classified in this group. This bracket encompasses a wide range of individuals, from a 25-year-old beginning to build a 401(k) retirement portfolio to a 50-year-old who has rented for years and is saving gradually.
Yang notes that while an individual’s net worth may fit within this range, their personal feelings about their financial situation can vary significantly. Sometimes the label of “lower middle class” can feel discouraging, even for those with relatively high incomes. Some individuals in this tier may earn substantial salaries yet have not accumulated net worth commensurate with their earnings due to time constraints. In such cases, while categorized as lower middle class, their lifestyle could be quite upscale, potentially leading toward upper-middle-class status in the future.
Typical households in this income tier have a net worth of about $100,900 and an annual income of approximately $67,700. The median net worth for this tier has dropped about 1% over recent years, down from $102,100 in 2022.
Yang expresses concern over the declining percentage of households holding stocks, which decreased from 58% in 2022 to 56%. Among households in the lower half of the income spectrum, only 31% own stocks (including those held through 401(k) plans). While the stock market has enriched many investors in recent years, those in this income bracket without stock investments have been unable to benefit.
For the lower middle class, Yang’s recommendations include: first, even small investments can be beneficial, so consider participating in the stock market through low-cost, diversified index funds; second, if you have a 401(k) retirement savings plan, make sure to take full advantage of employer matching contributions, as this is essentially “free money” that can significantly increase your investment total; third, focus on increasing income, as a 10% raise in this income range translates to an extra $6,800 annually, which, if invested, can help elevate you to a higher income tier over time; and fourth, work on increasing home equity, which represents a crucial demarcation between lower and upper middle-class households.
The 50th to 75th percentile group is often termed the “upper-middle class.” This tier’s net worth ranges from $215,900 to $812,800, with a typical household net worth around $405,000 and a median income of $97,600.
Gaining entry into this tier hinges on home equity. The median net worth for homeowners in the U.S. stands at $458,900, whereas renters have a median net worth of only $10,600—meaning homeowners’ net worth is approximately 43 times greater than that of renters. Real estate has proven to be a reliable method for accumulating net worth. Currently, the median home equity for most homeowners has reached a historic high of $230,000. However, purchasing a home is more challenging than ever, with median home prices now exceeding 4.5 times the median household income, making it increasingly difficult for individuals to enter this tier.
Before making the decision to buy a home, it’s essential to evaluate whether homeownership is genuinely worthwhile. For some individuals, renting may be more financially advantageous. Those who maintain financial discipline can potentially earn more by renting and investing the difference wisely. Additionally, buying homes that exceed one’s financial comfort could lead to serious financial troubles.
For the upper-middle class, Yang advises: firstly, be cautious of lifestyle inflation as income approaches $100,000; while it might seem sufficient to improve your quality of life, negligence in managing this may lead to stagnating finances; secondly, even at this level, focus on income growth. Are there certifications or educational programs that could elevate your salary from $100,000 to $125,000 or even $150,000? If so, that pursuit is worthwhile.
Wealthy households extend from the upper-middle class, encompassing those in the 75th to 90th percentiles. Households in this bracket possess net worth ranging from $812,800 to $2.54 million, with typical family net worth at $1.27 million and median household income around $152,000.
Interestingly, between 2022 and 2025, the income of typical households in this wealthy tier actually fell by about 1%, yet their net worth skyrocketed by 12%, rising from $1.13 million to $1.27 million. Yang attributes this difference to the principle of “making money work for you.” For this group, assets serve as the backbone of their net worth, evidenced by the Federal Reserve’s findings that the median value of stocks held by wealthy households increased by 36% compared to 2022.
Another noteworthy statistic is that even within this tier, spending tends to be quite reasonable. Households in the 80th to 90th percentiles average annual expenditures of $68,800, excluding housing costs. Many likely belong to dual-income households, maintain substantial 401(k) retirement accounts, and practice reasonable budgeting.
Yang offers several recommendations for the wealthy tier: first, dedicate time to optimizing your investment portfolio, as reaching $1 million or more in assets will greatly enhance your net worth in a strong market year; second, practice discipline and resist temptations such as gambling, day trading, or trying to predict market movements; third, at this income level, tax considerations become vital. Ensuring you leverage all available tax-advantaged accounts and wisely select where to allocate your investments is crucial.
The top 10% of earners, often referred to as the upper class, have a net worth threshold of $2.54 million or more. The typical family in this tier has a net worth of $4.94 million, with a median income of $309,500. The entry threshold for the top 10% rose from $2.1 million in 2022 to $2.54 million now, representing an increase of approximately $440,000.
In 2022, the typical family in this upper class reported an annual income of $329,500; now that figure has declined by about 6%. However, their wealth has grown by 20%, indicating that the wealthiest 10% in America have become richer primarily through asset accumulation. In terms of investment behavior, at least 97% of individuals in this bracket hold some form of stock. Moreover, 40% of this tier own private businesses, whereas only 8% of the lower middle class have their own enterprises. Thus, much of the wealth amassed by the top 10% stems from enterprises, stocks, and real estate.
It’s essential to note that many individuals in this group are considerably older, with a majority being families headed by those aged 75 and over. They are not at the peak of their earning periods. Reaching this level requires not only consistent good decision-making but also ample time for these decisions to translate into market value. For this tier, protecting existing wealth becomes far more critical than the pursuit of acquiring additional assets. Once affluent, the focus shifts from asset accumulation to safeguarding against downturns and preserving existing capital.