Renters face challenges in building wealth, study reveals. Strategies to improve financial stability.

• In 2022, the typical renter in the U.S. had a median net worth of $10,400, which is less than 3% of the $400,000 net worth of homeowners, as per the Aspen Institute.
• However, tenants can still take steps towards building wealth, experts say.

While renters may face affordability challenges, they can still take steps to improve their financial standing.

In 2022, the median net worth of a typical renter in the U.S. was $10,400, according to a report by the Aspen Institute. This is a record high, despite representing only about 3% of the nearly $400,000 net worth of homeowners.

The report observed that renters often face financial difficulties such as lower income, higher debt, smaller savings balances, and lower rates of asset ownership.

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The wealth gap cannot be attributed solely to equity, as the median home equity of $200,000 accounts for only a small portion of homeowners' median net worth, indicating that other assets contribute to an owner's wealth, according to the Aspen Institute.

Homeowners are more likely than renters to own assets such as cars, retirement accounts, and securities, according to a report. Additionally, renters who do own these assets have lower median values compared to homeowners.

Experts suggest that tenants can accumulate wealth by settling debts, enhancing their income and savings, and evaluating the feasibility of purchasing a home.

According to the Aspen Institute, renter households face financial challenges due to income, and there are ways they can build wealth.

Renters who earn less than $25,000 a year

According to the Aspen Institute, over one-fourth of renter households earned less than $25,000 annually as of 2022.

Households in this income group are more likely to be "cost burdened," meaning they have to spend a significant share of their income on housing and utilities, which makes it difficult for them to cover other essentials and build wealth, according to Janneke Ratcliffe, vice president of housing finance policy at the Urban Institute in Washington, D.C.

According to Ratcliffe, if you depend on any form of benefits, you will be removed from the program once you reach a specific income or savings threshold.

According to the Aspen report, a hypothetical family must first achieve financial stability in order to build wealth.

The report highlights the need for routinely positive cash flow, which can be achieved through higher income, lower expenses, or both, as well as increased savings and personal resources, and access to benefits that support stability.

Paying off high-rate debt can be a wise decision, according to Clifford Cornell, a certified financial planner and associate financial advisor at Bone Fide Wealth in New York City. A credit card balance can hinder any progress made in savings, he stated.

If allowed to accumulate, it can be incredibly toxic and destroy a financial situation, according to Cornell.

Be mindful of your housing expenses, advised Shaun Williams, a private wealth advisor and partner at Paragon Capital Management in Denver, which ranks No. 38 on CNBC's 2024 Financial Advisor 100 List.

He suggested that living in a different area or state could improve your job prospects and income.

Williams stated that seeking better opportunities and lower costs while trying to relocate is crucial.

Renters who make $50,000 to $75,000 a year

According to the report, in 2022, approximately 18% of renter households had an annual income between $50,000 to $75,000.

The report suggests that a hypothetical family in this income bracket has some financial security, but increasing their income and/or reducing their debt servicing could improve their financial position.

What is left over after all expenses are paid can be monitored by renters in this income bracket to find opportunities to save money each month, said Cornell.

Williams stated that finding ways to save around 5% to 10% of your income while also looking for ways to increase your earnings is a "great spot to be."

He stated that it's the beginning point to save a little.

Renters who make $100,000 or more a year

In 2022, approximately 20% of renter households earned more than $100,000 annually, according to the Aspen Institute.

Although this group of renters has the strongest financial profile, they may opt to rent rather than purchase for various reasons, according to experts.

Renting can be more affordable than owning, as tenants usually pay for their own insurance, utilities, and fees, while landlords cover maintenance and property taxes on the unit.

Cornell stated that for homeowners, their mortgage is the least amount they will spend monthly.

Experts suggest that renters can prioritize building their investments and savings instead of home equity while they are not renting.

Your mortgage payment of $2,500 will contribute $500 to your savings account, known as your home, according to Williams.

By saving the $500 difference in a retirement account, you can still save money and potentially see it grow faster than real estate, according to Williams.