Just like for a company, the balance sheet is one of the most important financial statements that a household can use to monitor its financial health. Put simply, it is a snapshot of your net worth, which is just your assets (stuff you own like your home, stocks, retirement plans, etc.) minus your liabilities (stuff you owe like mortgages, credit card debt, student loans, etc.).
Recently, households in the U.S. have been getting healthier financially than at almost any other time in history. In fact, if you look at homeowners, about 39% have no mortgage and roughly 85% of homeowners that do have a mortgage, their mortgage rate is under 3.5%. When you couple this low amount of debt with all-time highs in the stock market, historically low unemployment, and decent wage growth, household net worth has never looked better.
Here are a few charts that illustrate this topic more clearly:
In the chart above, you can see that since the great financial crisis, household net worth has consistently grown over the last fifteen years.
In this illustration, a more recent time period (from the pandemic in 2020 until the end of last year, 2023) shows the significant growth of household assets over the last three years while liabilities have dropped quite a bit.
Of course, the economic picture isn’t as rosy as it appears. There are some under currents to consider despite this encouraging data:
- There is still significant wealth inequality. The top 1% hold a much larger share of the total wealth compared to the bottom 50% [Pew Research Center]. This falls under the old saying that “The rich get richer”.
- Stubborn inflation could deplete some of the assets of households as they try to continue their same lifestyle without adjusting their spending habits for inflation.
For most households, things are looking pretty good, financially. If we can win the battle with inflation, we’ll see interest rates head lower, which will benefit the economy even more.
Please comment or send an email if you have any questions. Thanks!
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassemanagement.com
