How US Millionaires Are Changing

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00:00This chart shows that almost 20% of American households have a net worth of more than a

00:04million dollars, and one-third of them gained that status since 2017. That's good news, right?

00:09Well, there's an important caveat. Most of those millionaires made their wealth on paper,

00:13and that can make them feel richer than they actually are, and even I often fall for it.

00:17So what's going on? Since the 1980s, retirement accounts have largely displaced other forms of

00:21saving, and this is how most Americans invest in markets now. But those accounts aren't liquid.

00:26Investors can't access that money until they're at least 59, at least without paying a penalty or

00:30borrowing against it. Also, most of the time, they still owe income taxes on that money. So even if

00:35retirement assets are reported just like other kinds of financial assets, they are often actually

00:39worth less. The other big source of wealth is housing, which typically makes up about 40% of

00:44an American household's net worth. Selling your home involves substantial transaction costs,

00:48and then you do have to live somewhere, which means you also have to face higher prices and

00:53mortgage rates. This all adds to the illusion that we want to tell ourselves, that we're rich.

00:58Personally, I'm about 35% less wealthy than I appear on paper, and that assumes I can access my

01:04assets now, which I can't. This false sense of wealth can cause people to take on more debt,

01:09and having most of your assets in retirement accounts can increase your vulnerability to

01:12economic shocks. That's what makes this story far more consequential than another cliche profile

01:17of a high-earning but cash-poor millionaire. Because if all these rich-on-paper Americans start to feel

01:22poor and start to cut back on spending, watch out.