savings

What makes cities good for building wealth?

Downtown Houston at sunset © iStock

Moving to the big city to make your fortune is one of the most well-worn paths in the American mythos.

Yet, not all cities are created equally when it comes to getting ahead. Local job markets, cost of living, tax rates and many other city-specific factors will undoubtedly influence your ability to be financially secure.

Bankrate ranked the 18 largest metro areas in the U.S. according to how strong of an environment they provide for making and saving money. The results were surprising: The best areas for building wealth, it turns out, are not necessarily the biggest.

Take the San Francisco metro area, a region that has soared since the recession, thanks to a venture capital-fueled tech boom. It didn't even crack our top 10. And New York City, which for generations has been America's moola-making mecca, wasn't in the top 3.

Meanwhile, Rust Belt capitals Cleveland and Detroit ranked among the best in the U.S.

Bankrate built its ranking after consulting with experts on which factors should be considered in a conversation about wealth. There are countless large and small contributors; here are some of the big ones:

  • After-tax, savable income: This is what's left over after taxes and necessary expenses. It's what you could sock away in an interest-bearing account.
  • The job market: Can workers find jobs at competitive wages?
  • Human capital: Can residents find educational opportunities to help advance their careers and earn more money later?
  • Access to financial services: Do people have access to financial products that allow them to invest, save and borrow efficiently?
  • The local housing market: For better or for worse, homeownership is a key way Americans build wealth. If your local housing market is struggling, it can be harder for prospective homebuyers to get a mortgage and for homeowners to accumulate equity.

Household wealth

A household's total assets, both financial (stocks, bonds, checking and savings accounts) and non-financial (homes, cars, precious metals), minus its total debt.

We also looked at participation rates for retirement plans like 401(k)s, which have become a major wealth-building tool for middle-class households. Whether or not your employer offers one has a lot to do with where you live, both in terms of culture (whether employers think it's the right thing to do) and supply and demand, says Christian Weller, an economist at the University of Massachusetts Boston.

"If you're in an area where the unemployment rate is very low, then the employers have to compete for you, and part of how employers compete for you is they offer benefits and they offer retirement plans," Weller says. "Employers do compete on a regional level, on a city level, for talent."

The rankings

Bankrate's ranking of the best large cities to build wealth suggests that a glittering skyline and a larger-than-life media presence don't necessarily make for a good place to build wealth. Our top 5 are based on a variety of public and private statistics regarding the factors above, as well as a few other considerations, such as the level of debt that residents carry. The ranking includes data from the entire metro area -- not just the primary cities -- given that most urban workforces are populated by commuters who live in surrounding areas.

Best cities to build wealth

Cities (overall rank)Savable income*Labor marketHousing marketDebt level (lower rank is better)Access to financial services
Cities (overall rank): 1. Houston Savable income*: 5Labor market: 5Housing market: 5Debt level (lower rank is better): 1Access to financial services: 14
Cities (overall rank): 2. Washington, D.C. Savable income*: 1Labor market: 4Housing market: 7Debt level (lower rank is better): 18Access to financial services: 1
Cities (overall rank): 3. Cleveland Savable income*: 4Labor market: 14Housing market: 12Debt level (lower rank is better): 3Access to financial services: 3
Cities (overall rank): 4. Detroit Savable income*: 3Labor market: 18Housing market: 1Debt level (lower rank is better): 2Access to financial services: 7
Cities (overall rank): 5. New York Savable income*: 7Labor market: 2Housing market: 17Debt level (lower rank is better): 9Access to financial services: 8
Cities (overall rank): 6. Dallas-Fort Worth Savable income*: 14Labor market: 8Housing market: 4Debt level (lower rank is better): 4Access to financial services: 12
Cities (overall rank): 7. Baltimore Savable income*: 2Labor market: 12Housing market: 14Debt level (lower rank is better): 12Access to financial services: 5
Cities (overall rank): 8. Miami Savable income*: 6Labor market: 16Housing market: 13Debt level (lower rank is better): 5Access to financial services: 9
Cities (overall rank): 9. Minneapolis-St. Paul Savable income*: 11Labor market: 6Housing market: 3Debt level (lower rank is better): 13Access to financial services: 6
Cities (overall rank): 10. Chicago Savable income*: 12Labor market: 11Housing market: 18Debt level (lower rank is better): 7Access to financial services: 2
Cities (overall rank): 11. Boston Savable income*: 16Labor market: 3Housing market: 2Debt level (lower rank is better): 15Access to financial services: 10
Cities (overall rank): 12. Seattle Savable income*: 10Labor market: 7Housing market: 10Debt level (lower rank is better): 16Access to financial services: 4
Cities (overall rank): 13. San Francisco Savable income*: 9Labor market: 1Housing market: 8Debt level (lower rank is better): 17Access to financial services: 11
Cities (overall rank): 14. Atlanta Savable income*: 8Labor market: 17Housing market: 9Debt level (lower rank is better): 6Access to financial services: 18
Cities (overall rank): 15. Philadelphia Savable income*: 17Labor market: 10Housing market: 11Debt level (lower rank is better): 10Access to financial services: 13
Cities (overall rank): 16. Los Angeles Savable income*: 13Labor market: 9Housing market: 16Debt level (lower rank is better): 11Access to financial services: 16
Cities (overall rank): 17. Phoenix Savable income*: 18Labor market: 15Housing market: 6Debt level (lower rank is better): 8Access to financial services: 15
Cities (overall rank): 18. San Diego Savable income*: 15Labor market: 13Housing market: 15Debt level (lower rank is better): 14Access to financial services: 17

* Income after taxes, household expenses

Methodology: To create the rankings, Bankrate selected criteria for what helps build wealth based on extensive research and interviews with Christian Weller, an economist at the University of Massachusetts Boston and a senior fellow at the Center for American Progress, as well as other economic and financial experts. Bankrate measured how 18 of the biggest U.S. metro areas performed against those criteria using data from the U.S. Census Bureau, the Bureau of Labor Statistics, RealtyTrac, the Employee Benefit Research Institute, the Urban Institute, the National Association of Realtors, Standard & Poor's/Case-Shiller home-price index, the Federal Deposit Insurance Corp., the Department of Education and Bankrate's proprietary data.

Houston, not exactly the most glamorous of U.S. cities, topped our ranking. It did very well across most categories, with high savable after-tax income, a strong job market and low average consumer debt carried by residents. Washington, D.C., came in 2nd, also thanks to hefty amounts of savable income and a healthy job market. Unfortunately, residents there are burdened with excessive amounts of consumer debt, and that helped keep the nation's capital from 1st place.

While neither had particularly dynamic job markets, Cleveland and Detroit both beat out New York City on the strength of their high savable income and low average consumer debt.

Further down the list, San Francisco came in at 13th place. While the job market there is among the best in the country, it was pushed lower in our ranking by excessive debt burdens, driven in part by huge mortgage debts and high household expenses relative to income.

At the bottom was San Diego. It might be a great place to live if you're already wealthy, but residents' low savable income after taxes, relatively high unemployment and average debt burden put it at the bottom of the rankings.

Houston or bust?

So, should you move to Houston to strike it rich? Unfortunately, it's not that simple. Just because a city has displayed relatively good conditions for building wealth, it doesn't mean that everyone will do well there.

Say you're a great graphic designer: If Houston isn't home to many companies that employ graphic designers, you may not do well there. Or maybe you hate homeownership and never want to have a mortgage. In that case, Detroit's easy-to-enter housing market won't help you.

Why wealth-building matters

The shorthand for how well someone is doing financially is usually, "How much money do you make?" In other words, your income. But household wealth is just as important to your overall financial security and has only grown more so in recent years.

Americans' income has become more uneven compared with 20 or 30 years ago, says Tom Hirschl, professor of development sociology at Cornell University and co-author of "Chasing the American Dream: Understanding What Shapes Our Fortunes."

"There's a lot of instability in income over time, so people may have a high income at time '1', and the income at time '2' may not be high," Hirschl says. "There's a lot of turbulence in people's income histories, and the ability to put money away in good years is really important for people."

In fact, 80% of Americans will go through some kind of hardship that will hurt them financially, such as a divorce, extended unemployment or serious illness, Hirschl says. In those circumstances, wealth is what makes the difference between a few lean years and total financial ruin.

"That's the cushion that people need in today's economy," Hirschl says. "Between a third and a half of households are asset-poor, which leaves them a paycheck away from disaster."

“Wealth allows you to imagine a different kind of future than you could if you didn't have wealth.”

-- Ray Boshara, director of the Center for Household Financial Stability at the Federal Reserve Bank of St. Louis

Not just for emergencies

Wealth also has a broad range of effects -- not just for yourself but for your family and your community, says Ray Boshara, director of the Center for Household Financial Stability at the Federal Reserve Bank of St. Louis.

"It provides a springboard for Americans to make investments in themselves and their families" for such things as buying homes, starting businesses, getting an education or relocating for a new job, Boshara says.

Those who come from families with even modest amounts of wealth can reap huge benefits.

"They get these little transfers of wealth, $5,000, $10,000, maybe $20,000, at these critical moments -- Can they go to school? Can they buy that home? Can they move into that better neighborhood? -- that kind of have an outsized effect later on in life," Boshara says.

But wealth effects don't stop with your family. Building wealth can change the dynamic of an entire community, Boshara says.

"When people have wealth they have a stake in something, a sense of pride, a sense of ownership, and that sense of ownership changes their behavior," he says. "They're more likely to be engaged in their neighborhoods, in their schools, and with their kids, and, very importantly, to engage in future planning.

"Wealth allows you to imagine a different kind of future than you could if you didn't have wealth."

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