Americans Worth More Than Ever Before
Your bank account may not reflect it, but the total net worth of American households reached a new high in the second quarter of 2015. According to the latest release by the Federal Reserve, America's net worth rose by almost $700 billion to reach $85.7 trillion.
Second quarter readings represent the ninth quarter out of the last ten with an increase in America's wealth. Barring an unusual shock, 2015 will represent the seventh consecutive year of wealth growth after the collapse of 2008.
This may seem odd given the recent stock market drop, but rising home prices helped non-financial assets more than compensate for the lower growth rate in financial assets. Stock values increased by $61 billion, while the value of real estate rose by almost $500 billion.
Collective U.S. assets are just short of $100 trillion. Most asset wealth is in housing at $24.6 trillion, while nearly equal amounts are attributed to stocks and mutual funds ($21.8 million) and retirement/pension accounts ($21.1 trillion).
The total debt, however, has increased fivefold to $133 billion since 2008. Outstanding domestic non-financial debt totaled $44 trillion with household debt comprising $14 trillion of that amount. Business debt accounted for $12.5 trillion, and government debt topped the list at $17.5 trillion.
Household debt increased in the second quarter at a 3.9% annual rate — the largest increase in debt since 2007. Mortgage debt increased at a 2.2% annual clip while consumer credit increased by 8.1%. Total liabilities remain below levels prior to the recession, but increased debt suggests that consumers are beginning to gain confidence and are willing to take on more debt, even if their paychecks do not show much of an increase.
Accelerated Wealth Inequality
The uneven distribution of income, and in turn wealth, may be the main reason why the wealth improvement has not led to robust economic growth. Overall, things are looking up, as the second quarter GDP was revised upward to 3.9%. However, U.S. growth remains unusually slow for a post-recession recovery.
Note that the aggregate wealth numbers say nothing about the distribution of that wealth. There have been many discussions about income inequality, especially in an election year, but the effect of continued income inequality is an accelerated wealth inequality.
A 2015 report from the Organization for Economic Co-operation and Development (OECD) revealed that the richest 10% of Americans consume approximately 28% of the overall income, but 76% of all the wealth. The income proportion is typical for richer nations, but our wealth inequality is far higher than most nations and over ten percentage points larger than any other nation.
It is also worth noting that Fed numbers are not adjusted for population or inflation. By population growth alone, one would expect the numbers to rise at least slightly — but when these adjustments are taken into account, America's net worth is still riding high. Adjusted net worth is 4.8 times the U.S. GDP, the highest reading ever. Typical values are between three and four times GDP.
Can't get enough of these financial facts? If you would like more details about U.S. wealth and the country's financial accounts, check out the full report "Financial Accounts of the United States" for the second quarter of 2015 and the OECD report regarding inequality.
These reports probably contain more information than you really want, but they provide useful insight into America's household finances and how wealth and income inequality vary throughout the world. Now all you have to do is figure out how to direct more of that wealth increase toward your accounts.