The Federal Reserve provides us with a quarterly report of household net worth. The latest number is $89 trillion, up 59% from the financial crisis year of 2008. I don’t care who you are, that’s a lot of wealth—and a nice increase.
The distribution of our wealth from person to person is the subject of some political debate, which we will leave to the politicians. It always has made sense to us to focus on the things within our control; let’s see what we can learn from the numbers.
Our $111 trillion of assets includes homes, pensions, stock, money in the bank, mutual funds, small business ownership, and bonds.
We owe $22 trillion, most in the form of mortgage debt but also including consumer debt like auto loans and credit cards.
Net worth is simply the value of our assets minus our liabilities, or what we own minus what we owe. $111 trillion minus $22 trillion is our $89 trillion in net worth.
Here are the pertinent points, as we see them:
1. Having wealth in different forms is a good thing, a form of diversification. We the people have money in the bank, different kinds of investments, homes and businesses.
2. Debt can make sense when it helps us own assets of enduring value that we can afford to pay for over time. $22 trillion is a lot of debt, but it helps us to own $111 trillion worth of homes and businesses and other assets.
3. Since debt or liabilities are subtracted from assets to determine our net worth, it makes sense to minimize debt over time. One who pays off a car loan and then keeps putting the payment amount in savings each month might get by with a smaller loan the next time a vehicle is purchased.
4. Because assets are the starting point for determining net worth, one should seek to invest effectively for growth and income over time. Money does not grow on trees, but it may grow over time.
Our $89 trillion net worth is a very large amount of wealth for us as a society. The decisions we make play a big role in determining whether or not we each get our piece of the pie. We have written about Four Habits for Financial Success which might help, and we encourage you to call or email if we can be of service.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.