According to the Federal Reserve’s Survey of Consumer Finances, the median household net worth in the United States is $192,000. But what exactly is net worth, and why does it play an important role in understanding your financial health?
Yahoo Finance reporter Molly Moorhead takes a closer look at the concept, what it means, and how to calculate it.
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Video Transcript
According to the Federal Reserve, the median net worth of U.S. households was just over 100 at $92,000.
But what exactly is net worth, and why does it matter?
So to break it down, we’re joined by Molly Moorhead from Yahoo Finance.
I mean, what is it all about, after all?
Literally, it’s what you own minus what you owe.
And the reason that’s important is because it’s a good indicator of your financial situation, your financial health.
Well, it’s like a personal economic indicator that tells you how you’re doing.
Now, let’s see the calculation results on the screen.
I mean, what else comes into consideration here when you think about what you own and what you owe?
OK, so what are your possessions and assets?
Then you’ll add up all your bank account balances, as well as any retirement and investment account balances if you own real estate such as a home.
All of this, that is, minus your debts.
So if you have student loans or a mortgage, all of your debts will be subtracted from your total assets, which will generally be a lower number.
The younger you are, the more likely it is to be a negative if you graduate from college with a lot of student loan debt.
Hmm, but over time, as your salary grows, the hope arises that your investments will grow too.
It will increase.
Your net worth will increase.
So once you’ve calculated it, how do you track your net worth over time?
Right, so, your financial advisor is a great resource here.
They will show you the bigger picture and how you are working to increase your net worth.
And, you know, if you have a bank account or a Fidelity account or a Vanguard account, you link all your accounts and you put in all your numbers and it will show you.
Or you can use a good old-fashioned spreadsheet.
And it’s a really good idea to track that, because I think it’s motivating.
That means not tracking every week, but a few times a year.
can you see it?
Did you know that as you make payments, the amount of your debt decreases?
Well, the money I’m saving on my credit card or whatever it is is increasing.
