A quick explainer on Median vs Average to help when taking stock of your finances
In this short post (part of an ongoing series on the basics), we’ll talk about the difference between median vs average, and why it’s important to pay attention to both numbers when assessing your financial health.
Average (also called the “mean”)
Defined as “constituting the result obtained by adding together several quantities and then dividing this total by the number of quantities.” In simple terms, if you have 5 people with $10, $12, $14, $20, and $30, respectively, the average/mean amount a person in that group has is $17.60 because (10+12+14+20+30)/5=17.6
Median (call it the “midpoint”)
Defined as “the middle point in a sorted set of numbers.” In that same set of numbers from before, we find the median by literally picking the middle number since it’s a set of 5 (so the median is $14). Were it a set of 6, say with $1, $10, $12, $14, $20, and $30 respectively, the median would be the average of the two middle numbers (12+14)/2=$13.
Median vs Average – Why Should You Care?
The point of this quick explainer is to help keep things in perspective when you’re thinking about your finances. Humans are very inclined to consider not just their own good (or bad) fortune, but their fortune relative to others. Obviously you should not be trying to “keep up with the Joneses,” but it’s natural to try to compare your debt/net worth/income to numbers you see thrown around.
The reason this is important is that due largely to the extreme inequality in the US, averages are somewhere close to meaningless. It’s usually the median you want. For example, consider an imaginary local grocery store: Say in that store there are 75 shoppers, each earning between $30,000 and $100,000/yr in the set below:
Now say Jeff Bezos (net worth $193,000,000,000) walks into the store:
The difference is dramatic and obvious. One obscenely wealthy person walked into the store and the average income of a shopper jumped from $55,333 to $2,539,528,289. So many billionaires in one place (don’t tell the guillotine manufacturers)! The same is true for if an unemployed person walked into the store. The average might change to reflect it but the median essentially drops the outliers. Half make more than $50k, and half make less (basically).
Remember this when you see flashy articles about average net worth, in a country such as the US with extreme wealth concentrated in a fraction of a percentage of the population, there’s no sense worrying about where you fit in.
Just For Fun: Median vs Average Net Worth in the US (2016)
According to data from the federal reserve, here are the differences in median vs average net worth for US households as of 2016. It’s a bit out of date now but rest assured income inequality has not dramatically improved. Hopefully this illuminates why I bothered with this little post:
| Age | Average Net Worth | Median Net Worth |
| > 35 | $76,200 | $11,100 |
| 35-44 | $288,700 | $59,800 |
| 45-54 | $725,500 | $124,200 |
| 55-64 | $1,167,400 | $187,300 |
| 65-74 | $1,066,000 | $224,800 |
| >= 75 | $1,067,000 | $264,000 |
A few ultra-millionaires and billionaires are all it takes to make averages effectively meaningless. Remember that next time you see an article about average income/net worth/etc. and think of comparing yourself to it!