The Glorious Return of Wealth

The good news reported by the Federal Reserve last week can't be stressed enough: U.S. households' total assets grew by more than $3 trillion in 2010. Total household net worth grew about 6% last year to the highest level since 2007.

Even debt is falling at a pretty good clip. Households shed about $400 billion of debt since peaking in 2007. Mortgages are being defaulted on, and big banks such as Bank of America (NYSE: BAC  ) and Citigroup (NYSE: C  ) are writing off credit card and auto debt like there's no tomorrow (Don't worry about them. They get plenty of help from the Fed).

Maybe not surprisingly, the bulk of the increase in household wealth last year came from stock market gains. Real estate assets hit the lowest level since 2003 last year. Checking deposits rose just slightly. Bond assets rose mildly. The biggest gain by far came from stocks, which added about $1.7 trillion to household assets last year.

That's great news for many -- including almost everyone visiting this site. The problem, if you want to call it that, is that the distribution of equity ownership among households is incredibly skewed:

Source: Levy Institute 2007, author's calculations.

Opinions vary wildly about the significance of this chart. My view is that asset inequality is a great thing if a country also has strong income mobility -- the possibility of working hard and becoming wealthy in a purely meritocratic way. That's mostly true in the U.S., although study after study shows it's not nearly as strong as many assume. Most measures of income mobility show regions often nailed with a stigma of being anti-capitalism actually have higher income mobility than the U.S.

Anyway, when household wealth is driven by stock gains, and stock ownership is heavily skewed toward a small percentage of households, it's easy to see how a broad-based economic recovery might remain elusive. Things are getting better. Jobs are coming back. Debt is going down. Spending is coming back. And wealth is surely coming back, too. But it's all very bifurcated. In this economy, you're either doing great or struggling to hang on.

Got another view? Share it in the comment section below.

Fool contributor Morgan Housel owns Bank of America preferred. The Fool owns shares of Bank of America. Through a separate Rising Star portfolio, the Fool is also short Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On March 14, 2011, at 7:09 PM, dcflipflop wrote:

    "...the possibility of working hard and becoming wealthy in a purely meritocratic way."

    Increasingly difficult in today's society which funnels more money from working Americans to bankers, executives, "entertainers," athletes, and politicians whose value added (if any) is completely disproportionate to their outrageous compensation.

    Once you have wealth, an idiot could get more. If you don't have it already, you're pretty much hosed.

  • Report this Comment On March 14, 2011, at 7:57 PM, plange01 wrote:

    the return of wealth just went out the window between libya and now japan a major correction has started....

  • Report this Comment On March 14, 2011, at 8:02 PM, DDHv wrote:

    One very good way to start is with your own food. After adulthood, my first saving was with tomatoes - there was a grocery store sale and I bought plenty. Then every time a can was used, an amount equal to the non-sale price was set aside for later bargain buying. Before long, much of my food was being bought on sale.

    The first investment was with tomatoes also - I talked the landlady into letting me plant half a dozen tomato plants alongside the garage.

    The key is re-investing. When you can't make more by raising your own food, try other things, like bicycles or street roller skates. Eventually you will reach the point where you must invest in money investments, like stocks or bonds, even though the ROI is lower than with conservation and production.

    Do pay attention to labor costs, tho. Even if losing weight is your primary reason for gardening, adjust for the best results.

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