Usually when we hear the phrase "net worth" in the news, it's in reference to some billionaire. But today the headlines are about us! Yes, the Federal Reserve has announced that the net worth of U.S. households rose by $2.1 trillion to $56.8 trillion in the fourth quarter of 2010. Now, in a period of fitful economic recovery, we'll take any piece of good news. But what exactly is net worth?
Economists calculate net worth by tallying up each household's total assets (real estate, stocks, bonds, deposits, pension reserves) and then subtracting its total liabilities (mortgages, credit card debt). American households did well at the end of 2010 because the stocks they held rose in value and because households slashed their debt, as declining home values and high unemployment encouraged higher levels of savings. We're cutting spending selectively, though. According to another Fed report released this week, Americans are scaling back their mortgage and credit-card debt while taking on more loans for cars and education, among other expenses.
U.S. households, moreover, are not totally back in business. As Bloomberg points out, household wealth remains about $9 trillion below pre-recession levels.