Tightening the Belt: Americans Reduce Spending, Lower Debt
"Those hard kitchen-table choices to make a positive number at end of month are driving [the increase in net worth]," Mark Cole, executive vice president of CredAbility, says. "People are setting more aside for emergency savings and they have more cushion available to them. The more they pay off unsecured debt, the more cushion grows." Credit agency Transunion echoed this earlier this week when it reported that credit-card debt had fallen near 10-year lows to $4,699 per borrower -- a decline of 5%, year over year -- in the second quarter.
The easiest way to get a net worth figure is to calculate your assets (cash, savings, property, retirement savings, investments) and subtract debts (mortgage, home equity loans, auto loans, credit cards, student loans, personal loans, outstanding bills, taxes owed or child support). An online calculator can help you figure this out as well.
While any upward movement for net worth is a positive signal for Americans who are shoring up debt, it can also be a downside for the economy, as it underscores America's over-reliance on consumer spending. Less shopping on credit translates into slower business growth and fewer jobs. Recent data show that consumer spending, which accounts for 70% of economic activity, decreased slightly in June, even as personal savings were increasing. This contributed to the sluggish recovery. The paradox is that what is best for Americans' personal finances, may not be best for the national economy.