Renters in the U.S. face a significant wealth gap compared to homeowners, according to a recent report by the Aspen Institute. In 2022, the typical renter had a median net worth of just $10,400, less than 3% of the $400,000 net worth of homeowners. The disparity is not solely due to home equity.
Homeowners benefit from a more diversified portfolio, with median home equity accounting for just over half of their median net worth. Across income levels, renters are less likely than homeowners to own assets such as cars, retirement accounts, and securities. Janneke Ratcliffe, vice president of housing finance policy at the Urban Institute, emphasized the need for financial stability as a precondition for wealth building.
This includes achieving routinely positive cash flow through higher income, lower expenses, or both, as well as saving more and accessing benefits to support increased stability. Experts suggest that tenants can begin to build wealth by paying off outstanding debt, increasing their income and savings, and evaluating if and when a home purchase makes sense. Clifford Cornell, a certified financial planner at Bone Fide Wealth in New York City, advises tackling high-interest debt, such as credit card balances, which can erode any progress made in savings.
Renters’ financial strategies for wealth
Shaun Williams, a private wealth advisor at Paragon Capital Management in Denver, suggests that relocating to areas with better job prospects and lower living costs can significantly improve financial well-being. For renters who make $50,000 to $75,000 a year, Cornell recommends monitoring cash flow to identify opportunities to save money each month.
Williams notes that saving 5% to 10% of income while exploring ways to boost earnings is a solid strategy for this income group. Renters who make $100,000 or more a year can focus on building their investments and savings. Cornell suggests that if the hypothetical difference between a mortgage payment and rent is $500, renters should invest the savings in retirement accounts.
This approach can potentially yield faster growth than real estate. The recent surge in home prices has made it increasingly difficult for people to enter the housing market. Katherine Lucas McKay with the Aspen Institute’s Financial Security Program said, “So that does make it even more important for us to think about, if you’re a renter, how can you build that wealth as early as possible in your life?
One of the easiest ways is just by opening a retirement account or an investment account, which has become a lot easier to do on your own in recent years.”
By strategically managing their finances and exploring varied investment avenues, renters across all income levels can work towards building their wealth over time.
