Wealth, U.S. Consumer

Consumer wealth is simply the value of assets less the debt that consumers owe. Major wealth categories are real estate, consumer durable goods, and financial assets such as checking and savings accounts, bonds, stocks, and the equity in noncorporate businesses.

Every 3 months the Board of Governors of the Federal Reserve System publishes the “Z.l” release, the Flow of Funds. These tables contain balance sheet and income data for all major parts of the U.S. economy.

Figure 1 shows how the total assets of the “Household and Nonprofit Organizations” have grown over the past 54 years. In their December 7, 2006, release, the Board reported that these assets had reached a record $67.1 trillion on September 30, 2006.

Figure 1 Total Assets: Households and Nonprofit Organizations

Source: Federal Reserve Board.

Figure 2 Total Liabilities: Households

Source: Federal Reserve Board.

Figure 2 shows the pattern of liabilities of the segment. Total liabilities were not quite $13.0 trillion on September 30, 2006.

Figure 3 shows the net worth (assets less liabilities) of the sector. The stagnation in 2000–02 represents the impact of the crash of the stock market in 2000, which wiped out some $6 trillion of wealth. That has been more than made up with the increased value of residential real estate, which was worth $20.5 trillion as of September 30, 2006.

Total net worth of consumers on September 30, 2006, was a record $54.1 trillion. This is about 4 times the gross domestic product (GDP), the total value of goods and services produced for final demand with the borders of the United States. Total GDP was running at a seasonally adjusted annual rate of $13.3 trillion in the third quarter of 2006.

Figure 4 shows consumer wealth as a percentage of disposable personal income. Once again the impact of the big swings in stock prices in 1999 and the subsequent crash is obvious. Still, on September 30,2006, Americans had a net worth 563.8 percent or 5.6 times greater than incomes after taxes.

The huge issue for the next 40 years or so is how will U.S. owners dispose of this wealth? Will it go to charities and universities, to the children of the wealth owners, to the government in taxes, or where? The only thing we know for certain is that the amounts transferred will be the largest in history.

The two richest people in the United States and the world are Bill Gates, who made his money as the cofounder of Microsoft, and Warren Buffett, who made his fortune through very astute investing. Both have announced they plan to give away most of their billions.

The Bill and Melinda Gates Foundation is now the largest foundation in the world, with assets of $31.7 billion. In 2006, Warren Buffett announced he was giving the bulk of his fortune to that foundation as well, because he thought its goals were admirable and that it [Page 1020]very efficiently funded good causes. His first installment of $1.6 billion was paid on August 24, 2006.

Figure 3 Net Worth: Households and Nonprofit Organizations

Source: Federal Reserve Board.

Figure 4 Net Worth as a Percentage of Disposable Income

Source: Federal Reserve Board.

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