Last week we took a look at recent statistics from a survey by Trulia that showed that owning a home is (on average) 35% cheaper than renting. We also talked about real estate as an investment.
Today let’s look at the average American family’s net worth. Before we begin, what exactly is net worth? Here is a very straightforward definition from Moneycrashers.com:
“Net worth is determined by subtracting your liabilities from your assets at a specific moment in time. If you have more assets than liabilities, you have a positive net worth. If your liabilities overwhelm your assets, your net worth is negative.”
To simplify this even further, let’s create an example:
Owns a home worth $200,000
Has $30,000 worth of investments
Has $20,000 in savings
Total assets: $250,000
Owes $80,000 for mortgage on home
Owes $10,000 in credit card debt
Owes $10,000 in student loans
Total liabilities: $100,000
To calculate net worth, subtract $100,000 (liabilities) from $250,000 (assets) for a
total net worth of: $150,000.
Now look at this graphic from a report from the Federal Reserve from late 2012:
From the chart, we can see that the average American family’s net worth is $77,330. Among that amount, $47,500 is in home equity and the remaining $29,800 is in other assets. So, more than half (61.4% to be exact) of a family’s net worth comes from the value of their home. And, this is after a very rough decade for the housing market.
Here’s another view of these numbers:
So, we can see that owning a home is a huge factor in the average American family’s net worth. Tomorrow we will compare the average net worth of homeowners to renters.
Until then, have a great day!