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The American Balance Sheet

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Financial advisor Carl Richards has a good piece in The New York Times this morning arguing that with so much information on the Internet and with people living such complicated lives, many of us don't know where to begin when getting control of our finances. His advice: Start by calculating your net worth. Assets minus liabilities -- it's basic stuff, but you have to know the basics to get going.

The Federal Reserve actually does this every quarter for American households in aggregate, showing how much money we hold in various assets, how much we owe in liabilities, and our collective net worth.

Here are a few of the top asset categories we own and how they've changed since the last recession started in 2007:



Q2 2012

Cash deposits

$7.5 trillion

$8.7 trillion

Treasury securities

$202 billion

$878 billion

Stocks and mutual funds

$14.2 trillion

$14.3 trillion

Real estate

$23.5 trillion

$19.1 trillion

Source: Federal Reserve.

There's a lot more cash, a surge in Treasury bonds, and about the same level of stocks and mutual funds. Obviously, the housing bust wiped out trillions of dollars in real-estate value.

Now here's total net worth:



Q2 2012

Total assets

$80.3 trillion

$76.1 trillion

Total liabilities

$14.3 trillion

$13.5 trillion

Net worth

$66 trillion

$62.6 trillion

Source: Federal Reserve.

That's still about $3.5 trillion below prerecession levels. That works out to a difference of $31,000 per household.

Net worths in 2007 were a bubble fueled by real estate, so there's no reason to think we should have rebounded back to past levels quickly. But the psychological blow this deals is devastating. And what's frightening to think about is that most of the money piling into cash and bonds is earning a negative return after inflation. Americans in general are ill-prepared for retirement. The current rush to cash and bonds will almost certainly leave them even worse off.

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Follow him on Twitter @TMFHousel. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (9) | Recommend This Article (13)

Comments from our Foolish Readers

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  • Report this Comment On October 02, 2012, at 6:37 PM, xetn wrote:

    This overlooks the $222 trillion of unfunded liabilities as outlined by Professor Kotlikoff. If included in the balance sheet liabilities, the US would be bankrupt.

    He also predicts that the unfunded liabilities will increase at about $11 trillion per year. What he means is the government would have to invest $222 trillion now and earn about 5% per year to correct the problem. Of course that would be impossible.

  • Report this Comment On October 02, 2012, at 7:06 PM, ynotc wrote:

    We might break even in a fire sale of assetts.

  • Report this Comment On October 03, 2012, at 4:25 PM, sciencedave wrote:

    This is a little confusing....but $31,000 appears to be the average loss based on a "average" household net worth of $600,000 according to these numbers. However since the "mean" household net worth is published to be only about $120,000 for 2012 the mean loss in networth would be much smaller it appears and varies significantly with age group. Unless you are over 40 you have lost little since you had little to start with. Younger households do not or are unable to save money. Make sense?

  • Report this Comment On October 03, 2012, at 6:14 PM, RoderickEurope wrote:


    Social security is pay as you go. It is not a private pension plan. So talking about it as being under funded is not meaningful. Same for medicare.

    It is quite easy to fix these programs and it has been done before (80s for social security)

    What would it mean for social security to be fully funded? That the government has enough money today to pay all future generations stretching to infinity? That is simply absurd. Social security is a system of tax and transfer, not investing in assets to generate income to pay present retirees. It bears no resemblance to a corporate pension plan.

    Kotlikoff is a fear monger, which is a species that flourishes today on the Web. I don't take him seriously and I have had email correspondence with him. I was trained and worked for many years as an economist. Kotikoff is not taken too seriously by the economics profession because he uses a fully funded pension model when most Federal government liabilities are pay as you go. Moreover, he doesn't know what the future liabilities and revenues are going to be. No body does. Depends on future real GDP growth rates, life expectancy, tax rates, and benefits. But he goes around tossing numbers without providing any measure of the uncertainty associated with his estimates. What statisticians call standard errors.

    One final point. Anyone who looks at the demographics knows that social security benefits will be cut, just as they have been in the past. So the liabilities will not be anyone as great as this Boston University professor claims. The retirement age will be raised to 67. In Germany this happens in 2015.

    I have been told ever since the early 70s that social security is going broke ... this prediction has a very poor track record ... Don't sweat.

  • Report this Comment On October 04, 2012, at 2:28 AM, TerryHogan wrote:


    Of course you don't have to worry about social security going broke if you keep cutting benefits, but it's a difference of degree. For someone who dies at age 66, there is no difference in social security going broke, and changing the retirement age to 67 from 65.

    I'm not familiar with Kotlikoff or his estimates, but I don't think anyone is advocating that the Govt. have today all the money it will ever need to pay out Social Security. I do think they would want the system to be fixed so that it is sustainable. I think the point most people are making is that it needs to be changed (by raising the retirement age as you suggest or some other means) or else it will fall apart (collapse under the weight of our obese baby-boomers [no offense fogeys - thanks for landing on the moon and inventing the internet])

    One thing that interests me about this article is that there are $33 trillion in assets not found in Real Estate, stocks, treasuries or cash. Where is all this - bonds?

    @TMFHousel - could you post some of the other categories?

  • Report this Comment On October 04, 2012, at 8:36 AM, ravenesque wrote:

    Freedom is the freedom to say that two plus two make four. If that is granted, all else follows.

    - Orwell

  • Report this Comment On October 04, 2012, at 8:55 AM, pondee619 wrote:

    Cash and Bonds as a percentage of:

    2007 total asstes= 9.6%

    2012 total assets= 12.6%

    An increase of 3% is hardly a "rush" especially considering the mistrust Wall street has engendered during the last crises. Also, considering the average age of Americans, isn't that cash and bond holding a little light at 12.6%

    " Americans in general are ill-prepared for retirement." 8% +/- of Americans, actively seeking emloyment, are out of work. Preparing for retirement is, probably not a priority,

    "Net worths in 2007 were a bubble fueled by real estate, so there's no reason to think we should have rebounded back to past levels quickly"

    Let's see what hapens if we deduct the value of real estate from the above charts.

    2007 total net worth 66 Trillion less 23.5 trilliion real estate= 42.5 net worth sans real estate

    2012 total net worth 62.6 less 19.1 real estate= 43.5. This LEAVES the mortgage liabliity on said real estate completely untouched and fully counted. Save the housing bubble, it looks like we are recovering quite nicely, no? If net worths were a bubble in 2007 (your words), shouldn't we try to discount that bubble when making a comparision?

    Americans, dispite the recession and crises of the past five years have keep their stock and mutual funds holdings steady, increased their cash and bond holdings 3 % and LOWERED their liablities. You see a problem here?

  • Report this Comment On October 04, 2012, at 9:23 AM, clayman14 wrote:

    "Social security is pay as you go."

    If it is pay as you go why don't they pay it with taxes received from it? Instead of spending those taxes on other things. What a joke. Liabilities are liabilities whether funded or not. If you owe money in the future it SHOULD be on a balance sheet - accounting 101.

    This article should include the unfunded liability portion of our debt.

  • Report this Comment On October 04, 2012, at 11:41 AM, TMFDarwood11 wrote:

    Morgan, thanks for the succinct post.

    I agree that looking at 2007 "bubble assets" as a comparison, in particularly the value of personal real estate, creates a false impression. But that works both ways.

    I do look at my net worth on an annual basis, and I do adjust the value of my real estate. I did not succumb to the bubble, however, and understated the value. I wasn't planning on selling and so why run up false "paper winnings" in a real estate bubble? Interestingly, I now have no "paper losses" to contend with.

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