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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 situation.
In 2022, the typical renter in the United States had a median net worth of $10,400, according to a new report from the Aspen Institute. That's a record high — even though it represents less than 3% of the homeowners' net worth of about $400,000.
The report noted that renters generally face financial challenges such as low income, high debt, lack of savings, and low rates of asset ownership.
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The wealth gap isn't just due to home ownership. The Aspen Institute found that the average homeownership, at $200,000, represents just over half of homeowners' net worth, suggesting that owner wealth is derived from other assets.
The report found that across income levels, renters are less likely than homeowners to own assets including cars, retirement accounts, securities, and more. Renters who own such assets tend to have lower median values compared to homeowners.
Renters can start building wealth by paying off outstanding debt, increasing their income and savings, and evaluating if and when buying a home makes sense, according to experts.
Here are some of the financial challenges renter households face in three income brackets, according to the Aspen Institute, and ways they can build wealth.
Renters who earn less than $25,000 per year
As of 2022, the Aspen Institute found that more than a quarter of all renter households earned less than $25,000 annually.
Renter households in this income group are more likely to bear “cost burdens,” or have to spend a large 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. It makes it difficult for them to cover other necessities, let alone build wealth.
“If you're relying on any kind of benefits, once you achieve a certain level of income or savings, you're going to get kicked out,” Ratcliffe said.
A hypothetical family in this category “first needs financial stability to meet the prerequisite for building wealth,” the Aspen report said.
“They need routinely positive cash flow – through increased income, decreased expenses, or both – more personal savings and resources, and increased access to benefits that will support increased stability,” the report said.
Addressing any high 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. The credit card balance eats up any progress you make with savings, he said.
“It's incredibly toxic, and it can destroy someone's financial situation if you let that build up,” Cornell said.
Given that housing expenses can be the largest budget line item, think about where you live, said Shawn Williams, a private wealth advisor and partner at Paragon Capital Management in Denver, the No. 38 firm on CNBC's list of financial advisors for 2024.
He said you may have better job opportunities and increase your income by living in a different area or state.
“Trying to move to where there are better opportunities and lower costs is a key component there,” Williams said.
Renters who earn between $50,000 and $75,000 per year
In 2022, nearly 18% of all renter households earned between $50,000 and $75,000 annually, according to the report.
According to the report, a hypothetical household in this income bracket “has some basic financial security, although increased cash flow through higher income and/or lower debt service could enable a stronger position.”
Cornell said renters in this income bracket can monitor their cash flow to find opportunities to save money each month: “After all the expenses are paid, what's left?”
Williams said the “great place to be” is finding ways to save about 5% to 10% of your income while also looking for ways to increase your earnings.
“This is where you start saving a little bit,” he said.
Renters who earn $100,000 or more per year
About 20% of all renting households in 2022 made more than $100,000 annually, according to the Aspen Institute.
While this group of renters has the strongest financial picture, they may choose to rent rather than buy for a variety of reasons, experts said.
In some places, renting is less expensive than owning. Although renters may pay renter's insurance, utilities, and applicable amenity fees, landlords usually cover unit maintenance and property taxes.
For homeowners, “your mortgage is the absolute minimum you'll spend each month,” Cornell said.
Experts said that while these renters are not building home equity, they can focus on building their investments and savings.
For example, let's say your hypothetical mortgage payment is $2,500 while your rent is $2,000, Williams said. The mortgage payment will put $500 “in a savings account called your house,” he said.
If you're renting, take the $500 difference and save it in a retirement account. That way, you'll still save money, and it may grow faster than real estate, Williams said.
