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Dollars & Sense: Median or Mean? That is the Question!

Dollars & Sense: Median or Mean? That is the Question!

January 04, 2024

Happy New Year and thanks for tuning into our first episode of Dollars & Sense in 2024!

At Freedman Financial, our goal has always been to provide financial advice in a language you can understand. We’re starting off the year by crunching some numbers and having a friendly debate about median vs. mean…

Before we begin, we’re going to have a quick math lesson: to find out your net-worth, add up your assets (bank accounts, investment accounts, retirement accounts, house, car, and anything else of value that can be liquidated) and then subtract any liabilities (debt, loans against your car or house, credit card debt, student loan debt, etc.). Now back to our point – if you have 10 people and 9 of them make $90,000/annually and 1 person makes $10,000/annually, what is the mean? You’d add up each of their incomes and then divide by the number of people, which in this case would be $82,000/annually. The median, however, would be calculated by lining up those same 10 people, pushing half to one side, half to the other, and what remains in the middle in the median. If the number of data points is even, the median number is the average of the two middle data points in the list. In this case, that would be $90,000.  Are you still following? Now let’s apply this same math to the overall median household net-worth which is about $192,000. That’s up from three years ago when this same study was performed and the median net-worth was $121,000. That is an enormous increase of 50%!

Tune in to this week’s episode of Dollars & Sense as Marc and Marion debate median vs. mean and discuss why there’s been such a large increase in the overall median household net-worth in a language you can understand.

A full complement of Dollars & Sense broadcasts found here.

DISCLOSURES:
During Dollars & Sense with Freedman Financial, your host, Marc Freedman, may discuss specific financial planning and investment ideas. These discussions are for general information only and are not intended to provide specific advice or recommendations.

Securities and advisory services are offered through LPL Financial, a Member of FINRA and SIPC.

Always consult a Certified Financial Planner professional, qualified attorney, or tax advisor prior to investing to determine what is appropriate for you.

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