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Ten years ago, protesters on Wall Street and eventually throughout the world chanted “We are the 99%,” calling attention to the small pool of people who hold most of the wealth.
The latest MagnifyMoney study finds that the wealthiest 5% of households make more than six times that of households with average income in the U.S. cities with the most inequality.
But fixing the income gap won’t fix the wealth gap overnight, LendingTree chief economist Tendayi Kapfidze says. Here’s a look at the income gaps among the 100 largest U.S. cities for which data is available.
The cities with the largest income gaps beg the question: At what point does an income gap become an income abyss?
Among the 10 cities MagnifyMoney researchers identified as having the largest income gaps, the wealthiest 5% of households earn, on average, nearly six times the income of average households.
|10 cities with largest income gaps|
|Rank||City||Average household income||Average household income (top 5%)||Ratio|
The average annual household income of $120,790 in Atlanta might seem sizable, but it’s dwarfed by the $777,528 that the Georgia city’s top 5% of wealthiest households take home each year, on average. That difference puts Atlanta at No. 1 on our list of the largest income gaps.
Akron, Ohio, is also among the 10 cities with the largest income gaps, with an average household income of $60,309 — less than half that of the average in Atlanta. For comparison, Akron has an estimated 83,821 households, versus 223,736 in Atlanta.
Among these 10, New York, Akron, Ohio and Chicago are the only cities located outside of the South.
Will the rich be less rich? The current White House administration has proposed increasing the top income tax rate to 39.6%, up from 37%. This would impact individuals who earn more than $452,700 in 2022 and married couples who make at least $509,300.
On the other side of the rankings, higher-than-average incomes help to bridge the gap between households with average income and the top 5% of households.
|10 cities with smallest income gaps|
|Rank||City||Average household income||Average household income (top 5%)||Ratio|
|2||Corpus Christi, Texas||$72,163||$259,468||3.60|
|6||Virginia Beach, Va.||$98,881||$375,073||3.79|
California is home to three of the cities here, including Riverside, the city with the smallest income gap overall. Here, the average household income falls just under 30% of the average income for the wealthiest 5% of households. Meanwhile, the top 5% of households in Toledo, Ohio, have the lowest average household income among the 100 cities examined at $190,836.
The average household income among the cities with the largest income gaps is $87,593 a year. Meanwhile, the average household income among the cities with the smallest income gaps is $91,441 a year — or 4% more.
Of course, that pales in comparison to $343,734, which is the average household income for the top 5% in the cities with the smallest income gaps. Even though these 10 cities have the smallest income gaps, the wealthiest households still outearn typical households by nearly four times, on average.
Data from the cities MagnifyMoney identified as having the smallest income gaps demonstrate the limits of higher salaries when it comes to closing overall income and wealth gaps.
Households with average income in San Francisco, for example, earn $173,858 annually — nearly double the average of $87,866 across the 100 cities. But the wealthiest households in the California city still make 4.5 times as much.
Across the U.S., the top 5% of households in the U.S. earn $430,662 on average — 4.7 times the national average of $92,324.
Income inequality in America is worse than in 2010.The Gini coefficient — a measurement of income inequality — ranges from 0 (complete equality) to 1 (complete inequality). In 2010, the Gini index was 0.47. In 2013, 2016 and 2019, the index was 0.48.
The question about the wealthiest households remains: Where is all the money coming from?
Among taxpayers who earn less than $100,000 a year, 80% of their annual income, on average, comes from their salaries. Meanwhile, among those earning $200,000 or more annually a year, 60% of their annual income comes via other sources.
|How much of taxpayers’ income comes from salaries|
|Adjusted gross income (AGI)||% of AGI that comes from salaries|
|$1 to $4,999||99%|
|$5,000 to $9,999||77%|
|$10,000 to $14,999||69%|
|$15,000 to $19,999||76%|
|$20,000 to $24,999||80%|
|$25,000 to $29,999||82%|
|$30,000 to $39,999||83%|
|$40,000 to $49,999||81%|
|$50,000 to $74,999||77%|
|$75,000 to $99,999||74%|
|$100,000 to $199,999||73%|
|$200,000 to $499,999||66%|
|$500,000 to $999,999||55%|
|$1 million to $1,499,999||44%|
|$1.5 million to $1,999,999||39%|
|$2 million to $4,999,999||33%|
|$5 million to $9,999,999||28%|
Even if salaries played a more significant role, the wage growth necessary to close the gap is pretty unrealistic. Households with average income would need to increase their earnings between 13% and 20% a year for 10 years to reach the top 5%.
For perspective, that means the members of a household in Riverside, Calif. with an annual income of roughly $90,000 would need to get raises of roughly $11,700 each year for the next 10 years to get to where the wealthiest 5% are in terms of annual income.
But that’ll be tough, as Kapfidze says wage growth has been pretty negligible for the past few decades. The growth that has occurred has disproportionately benefited those in the top 5%, whose wages grew about four times faster than middle-wage workers (those at or near the 50th percentile of wage distribution) between 1979 and 2019, according to the Economic Policy Institute.
So, realistically, people who want to get closer to the upper echelon will likely need to explore income sources outside of a regular salary — or find a very lucrative side hustle.
The racial wealth gap between Black and white households in the U.S. has been frequently reported. While the cities MagnifyMoney studied further confirm the existence of this disparity, a worse overall wealth gap doesn’t necessarily correspond with a worse racial wealth gap.
Though Atlanta has the largest income and racial income gaps, the second largest racial income gap is in Minneapolis, which ranks 74th among overall income gaps. Richmond, Va., and New Orleans join Atlanta in having top-five income and racial income disparities.
On the other hand, Riverside, Calif. — with the smallest overall income gap — falls behind Irving and El Paso, Texas, in terms of racial income parity. Anaheim, Calif. is the only other city that was among the five with the smallest income and racial income gaps.
Regardless of your industry or job title, it’s unlikely your boss will approve a salary raise of $10,000 or more — and it’s even less likely they would do it every year for the next decade. But just like the top 5%, consumers can find other ways to build wealth beyond a high salary.
The truth is, most people won’t be able to save their way to significant wealth without some outside factor helping, such as a major cash windfall or a larger-than-life salary. But one small way to start building your wealth is building up your savings.
After all, you should start with basic emergency savings and retirement contributions before you aim for lifestyles of the rich and famous. This might mean lowering your cost of living, finding a higher-paying job or making lifestyle adjustments like cooking at home more than going out.
While cash savings are an important foundation for building wealth and overall financial wellness, your money needs to be working as hard as you are to really grow.
Investing in stocks, bonds or other vehicles can help you create passive income. Though recent trends like cryptocurrency and social media-fueled stock market games might seem like some investors are getting rich overnight, Kapfidze emphasizes the need for patience and understanding risk.
“The stock market will deliver appreciation, but it takes patience,” Kapfidze says. “Some of the recent trends in the stock market are risky, such as the GameStop episode, and people should be wary of such actions.”
History proves that the stock market is not invincible. And while liquid assets are important, assets such as a home can serve multiple functions, one of which being contributing to personal wealth.
“Homeownership has been the basis of middle-class wealth for generations,” Kapfidze says, though that can be much easier said than done. Owning a home means not only having a place to live — likely cheaper than paying rent — but building equity as home values rise and creating an opportunity to increase your income if you are able to rent out a room or the whole property in time.
In the same vein, starting a business could help increase your income and eventually become a valuable asset, but there’s plenty of risk involved as with any other investment. “Ultimately, finding ways to own assets while understanding the risks entailed is the best way to build wealth,” Kapfidze says.
To find the cities with the largest gap between the wealthiest households and those with average incomes, MagnifyMoney researchers estimated the average income for households in the 100 largest U.S. cities for which data was available and compared it to the average income for the top 5% of households.
We then divided the average income for the top 5% by the average income among all households within that city. We ranked the cities from the largest to the smallest gaps. Data came from the U.S. Census Bureau’s 2019 1-year American Community Survey.
Note: MagnifyMoney researchers generally try to use median income figures when analyzing income. In this case, however, researchers used average income because median estimates weren’t provided for incomes above $250,000, making it impossible to compare median incomes of the top 5% to the median household income.
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