Household net worth — the sum of all assets owned by American households — is up, and up a lot, to a new record high, according to the Federal Reserve. In the third quarter of the year, it grew by $4.8 trillion to just shy of $169 trillion. That’s primarily down to stock market gains and rising home values.
The increase doesn’t seem to be cheering Americans up a whole lot, though. Consumer sentiment is still pretty middling. But it probably is helping us keep the spending going.
There’s a name for what happens when better-off Americans see lots of plus signs in their brokerage accounts, and folks with 401(k)s see their balances going up, and home values keep rising. It’s called the wealth effect.
“We have had this gradual, consistent increase in both home prices as well as the stock market that’s led to people spending more money. And the cycle continues,” said Eric Freedman, chief investment officer at U.S. Bank.
These gains haven’t been evenly distributed. Take stocks, for instance. “Top 10% of wealth strata owns roughly 92% of all equity. So that’s a very disproportionate gain,” he said.
Still, ever more Americans are getting a bit of a bump as the stock market rises, said Sam Stovall, chief investment strategist at CFRA Research. “Stock ownership certainly is much more broad today than it was 20, 40 years ago because there are 401(k)s.”
Now, there is a risk here. Consumers could count on their paper profits in stocks and real estate, overspend and get into debt, said Tuan Nguyen, an economist at consulting firm RSM.
“It is true that credit card debt hit a new record high in recent quarters. But so did household assets, total income, because of the labor market and the stock market,” he said.
Americans’ debt-to-assets ratio is now near a multidecade low.
“The lower the debt ratio, the better it is for American consumers to keep spending without having to worry about how they are able to afford it,” Nguyen said.
Except that lower-income Americans, who have fewer assets, are putting more on credit cards and falling further behind.
