If you’re wondering whether there’s really a wealth gap in America, all you have to do is look at the difference between the median and average net worths in America. The median represents the net worth midpoint, with half of Americans falling above and half lying below.
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But the average gets skewed higher by the ultra-high-net-worth individuals in America, such as its 902 billionaires with their total net worth of approximately $6.22 trillion, according to Inequality.org. If the U.S. were to somehow implement a $1 billion wealth cap, how much extra money would the average American get?
What Are the Median and Mean Net Worths in America?
According to the Fed’s most recent Survey of Consumer Finances, the average net worth of Americans is $1,063,700. However, the median is just $192,900. This leaves a lot of ground to make up. Limiting net worth to “just” $1 billion in America would certainly draw the average down closer to the median, but perhaps not as much as you would think.
The reason is that while there are hardly any billionaires in America — less than 1,000 at present count — there are 342 million total Americans, according to the United States Census Bureau. In terms of population, this makes the United States the third-largest country in the world. No matter how immense the collective wealth of these billionaires is, when it goes from just 902 pockets to over 342 million, it gets immensely diluted.
How Much Extra Wealth Would Each American Receive With a $1 Billion Wealth Cap?
Simple mathematics will show how much of a financial boost the average American would get with redistribution.
First, take the total wealth of America’s 902 billionaires, which is approximately $6.22 trillion. Then, you’ll have to reduce this amount by 902 billion, as for this example each billionaire is allowed to keep a net worth of $1 billion each. That leaves a total of approximately $5.32 trillion.
Next, divide the remaining wealth available for distribution by the country’s total population of 342 million. Dividing $5.32 trillion by 342 million leaves about $15,550 for each person in America.
While no one would turn down a payout of that size, it might seem quite small in comparison with the massive sum of $5.32 trillion. But the truth is that as wealthy as America’s 902 billionaires are, they don’t hold a major percentage of the country’s total assets. In fact, billionaires alone “only” hold about 3.8% of American net worth. True, it’s ultra-concentrated into a very few hands, but that’s why it amounts to so little on an individual basis when distributed across the country.
How Could You Increase the Size of Your Distribution
While this type of reallocation would never actually happen, in a theoretical universe in which you did receive a $15,550 handout, how could you turn that into even more money? The simple answer is to invest it. Over time, invested at a 7% annual rate of return, that money would double every 10 years or so on average. After 30 years, if you could earn a 10% annual return, which is roughly the long-term average of the S&P 500 index, that $15,550 could grow to about $308,000. That’s about 20 times your initial investment.
Bottom Line
While getting a “bonus check” from America’s billionaires would be an amazing gift, with some diligent saving and investing, anyone can generate real wealth over time.
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This article originally appeared on GOBankingRates.com: If the US Had a $1 Billion Wealth Cap, How Much Extra Money Would You Have?
