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What is Household Wealth?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 18 November 2016
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    Conjecture Corporation
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Sometimes referred to as household affluence, household wealth is a term used to describe the net worth of a specific household, or the average net worth of households within a defined geographic area. Calculating this type of personal wealth figure requires identifying the current market value of all assets owned by the household, and subtracting the sum of all liabilities from that total value. Measurements of household wealth are helpful in assessing the stability of a local or national economy, as well as in planning or adjusting the budget for an individual household.

As it relates to understanding the economy of a defined geographical location, determining household wealth provides valuable clues into the changes in the standard of living that apply in that area over time. For example, the average wealth of households in a town may increase or decrease over a five-year period. Analysts will use these changes to determine the level of impact that events in the community had on that local economy. This means that if a business established a manufacturing plant in the area and hired a significant number of residents who were unemployed, assessing the household or residential wealth for the area will provide an idea of how much impact that employer has on the financial stability of the community.

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Measuring household wealth is also helpful with individual households. Since the formula requires identifying the value of all assets and the current amount of all outstanding liabilities, it is an easy task to determine if the household increases or decreases in wealth from one year to the next. The outcome of the calculation can aid in assessing how well the household did with the resources on hand. For example, if a household makes regular payments on a mortgage throughout the year and also retires a significant amount of credit card debt, that household’s wealth at the beginning of the New Year will be significantly more than for the same time the previous year. Should the household create new debt as fast as the older debt is retired, there may be little to no increase in wealth over the period cited.

Decreases in household wealth can mean that there is a need to reassess how financial resources are currently employed. This may involve changes in spending habits so that it is possible to funnel more income into some type of interest bearing venture, such as investments or even a savings account. At the same time, efforts to minimize the accumulation of debt may also be in order. When a household is not comfortable with the results of a household wealth analysis, the task is to find out what is contributing to the unfavorable trend and take steps to reverse that trend as quickly as possible.

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candyquilt
Post 3

I suspect that if most families analyzed their household wealth on a regular basis, many financial problems could be avoided or prevented. I think some people do this when it's too late and they realize that most or all of their income is going to debt payments and they've used up all of their savings.

The point of household wealth analysis is to diagnose the problem before it's too late and try to turn things around.

SarahGen
Post 2

The household wealth in my city has gone up because a car factory opened up here recently. It has been great because a lot of people had lost jobs due to companies downsizing and we had a few places shut down due to the economy. So most families have experienced loss of income. My uncle got a job at the factory, so we have experienced the results firsthand.

fBoyle
Post 1

I believe household wealth is also one of the measurements used for determining development. The higher the average household wealth of a nation, the better off it is. It's also a sign of high standards of living although other factors like social services, education, etc. go into that as well.

We can actually infer many things about a nation based on how the average household wealth is changing over time. I suspect that the US average has been going down since the mid-90s because the economy hasn't been doing too well and unemployment is on the rise.

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