One of the most striking images from Tolkien’s stories is of the dragon Smaug curled up on top of his massive treasure hoard. How far did his riches get him? Some real lessons from fantastic fiction.
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We subscribe to the theory that the better off you are, the better off we will be. More broadly, we believe the greater the wellbeing of our community and society, the greater our own wellbeing.
Our experience suggests we are on the right track.
And it stands to reason. Every retiree needs healthy, productive workers to pay Social Security taxes on good earnings. Every business endeavor needs customers with money. Every level of government from the village to the nation requires taxes from productive workers and businesses to offer its basic functions.
America has perhaps been the place where the highest fraction of the people could unlock the greatest part of their own potential. We think this explains our prosperity relative to nearly all other countries.
Here’s a thought experiment. How would things be different if left-handed people were no longer permitted to engage in any occupation which required tools, even a computer?
If you are left-handed, this would clearly be a bad thing. A household with two different adults—a left-hander and right-hander—would have a tougher time financially than they would otherwise. (Right-handed people would have “less competition” for better jobs, but would they be any better off overall?)
When you think about it, a system that discouraged or limited a tenth of the population would hurt us all. To carry on with our example, consider how our world has been enriched in many ways by unique talents of left-handers: Leonardo, Einstein, Helen Keller, Marie Curie, Jimi Hendrix… even Oprah and Lady Gaga!
And all those less-famous lefties going about their lives, doing ordinary things to make their own lives more extraordinary, have been responsible for untold wealth and progress.
Certainly, our nation and our world would be poorer, with lower total income distributed more unevenly.
This is why our surest path to the brightest future includes working to expand opportunity to the whole of our people—letting everyone on the ladder, with a fair shot at the next rung.
Discrimination in access or pay or opportunity makes us all poorer. Inclusion makes us richer, and yes, even when left-handers have a fair shake. And women. And people of color. And anyone else you can think of.
America’s historic source of strength and prosperity—being the place where people can unlock their own potential—can be made more true for more of us. And it will be to the benefit of all of us.
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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.
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