Household Net Worth Hits A Record While Debt Service Remains Low

Household Net Worth Hits A Record While Debt Service Remains Low by Robert Hughes for American Institute for Economic Research

Despite the pandemic, restrictive government policies, and the worst economic contraction in history, household net worth rose again in the fourth quarter to a new record. Household net worth rose to $130.155 trillion, up 5.6 percent from the previous record of $123.229 trillion in the third quarter, and 10.1 percent from $118.220 trillion at the end of 2019 (see first chart). Total assets rose to $147.2 trillion while total household liabilities increased 1.8 percent or $297.3 billion, to $17.057 trillion (see first chart).

Total assets consisted of $104.6 trillion of financial assets and $42.6 trillion of nonfinancial assets. The gain in total assets was due to a 6.3 percent increase in financial assets which contributed $6.2 trillion to the increase in net worth (see second chart). Within financial assets, equities led with a 14.1 percent rise. Nonfinancial assets rose 2.5 percent, contributing $1.0 trillion to net worth (see second chart). Within nonfinancial assets, real estate led with a 2.6 percent rise. The change in total liabilities was led by a $148.9 billion, or 1.4 percent, increase in mortgage debt to $10.9 trillion, while consumer credit increased $44.5 billion or 1.1 percent to $4.2 trillion (see second chart).

Two key measures suggest that household balance sheets are generally healthy. As of the fourth quarter, the financial obligations ratio (monthly payments for financial obligations as a share of disposable personal income) was 14.71 percent, up from 14.32 percent in the third quarter. Like many economic statistics, these numbers have been heavily distorted by the pandemic, lockdowns, and government payments. Excluding the government transfer payments, financial obligations would be 18.9 percent, down from 19.0 percent in the third quarter. Both measures remain well below their 40-year average through the end of 2019 (see third chart).

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