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Does Income Predict Net Worth?

High income is not always correlated with a high accumulation of wealth. The difference often lies in the income-earner’s level of spending versus saving, but other traits may contribute as well. It’s not uncommon to hear about millionaires who end up penniless and humble workers who diligently save long term to amass wealth. For example:

  • Oseola McCarty, an African American woman born in 1908, began a 79-year career of laundering clothes by hand. Saving diligently from the age of eight, she retired in 1995 with $280,000 in the bank, promptly donating $150,000 of it to fund scholarships for worthy but needy students at the University of Southern Mississippi.
  • One couple saved millions while working in the airline industry with a combined salary of $115,000.
  • Former boxer Mike Tyson, who, at his peak, was earning $30 million per fight, lost most of his wealth due to lavish spending, a divorce settlement and back taxes.

Intelligence, social skills, health and motivation are all traits that could determine someone’s net worth. In some cases, high net worth can also lead to a higher level of income. For instance, family wealth could play a part in a child receiving a better job. Someone who is already wealthy may also have increased confidence in pursuing new job opportunities.

It stands to reason that the older we get, the more we tend to accumulate assets that are not necessarily associated with our level of income. For example, years of saving, home equity appreciation and investment compounding all contribute to our net worth. More than 60 percent of households headed by someone age 65 and over have at least six-figures of wealth; more than 10 percent are into seven figures.

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