Here are steps renters can take toward building wealth

It’s no secret that homeowners often have a higher net worth than renters. But while renters face unique affordability challenges, there are still steps they can take to improve their financial standing.

In 2022, the typical renter in the U.S. had a median net worth of $10,400, according to a new report by the Aspen Institute. That’s a record high — even though it represents less than 3% of the nearly $400,000 net worth of homeowners.

Renters generally face financial challenges such as lower income, higher debt, less savings and lower rates of asset ownership, the report noted.

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The wealth gap is not solely due to home equity. Median home equity, at $200,000, accounts for only slightly more than half of homeowners’ median net worth, suggesting that an owner’s wealth derives from other assets, the Aspen Institute found.

Across income levels, renters are less likely than homeowners to own assets including cars, retirement accounts and securities, among others, the report found. Renters who do hold such assets tend to have lower median values compared with homeowners.

Tenants can begin to build wealth by paying off outstanding debt, increasing their income and savings, and assessing if and when a home purchase makes sense, according to experts.

Here are some of the financial challenges renter households in three sample income brackets face, according to the Aspen Institute, and ways they can build wealth.

As of 2022, more than one-fourth of all renter households made less than $25,000 a year, the Aspen Institute found. 

Renter households in this income group are more likely to be “cost burdened,” or have to spend a significant share of their income on housing and utilities, said Janneke Ratcliffe, vice president of housing finance policy at the Urban Institute in Washington, D.C. That makes it challenging for them to cover other essentials, let alone build wealth.

“If you’re relying on any kind of benefits, as soon as you achieve a certain level of income or savings, you get kicked off,” said Ratcliffe. 

A hypothetical family in this category “first needs financial stability to meet the precondition for wealth building,” the Aspen report said.

“They need routinely positive cash flow — through higher income, lower expenses, or both — more savings and personal resources, and increased access to benefits that will support increased stability,” the report said.

Tackling any high-rate debt can be a smart move, said Clifford Cornell, a certified financial planner and associate financial advisor at Bone Fide Wealth in New York City. A credit card balance eats away any progress you make in terms of savings, he said.

“It’s incredibly toxic, and it can absolutely destroy a financial situation for somebody…