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Chapter 8: Wealth in the United States

what is fund flow statement what are their uses

All communities divide themselves into the few and the many. The first are the rich and the well-born; the other, the mass of the people.

— Alexander Hamilton, 1787

Wealth is collected assets — cash, commodities, stocks, bonds, businesses, and properties. In the United States a small percentage of people have enormous wealth and the rest of the population has far less wealth. Is this a natural and acceptable result of capitalism or an economic injustice that must be righted for the good of society? This is a debate that has raged since the nation was founded. Some people believe the accumulation of great wealth is possible for anyone in the United States as the reward for hard work, ingenuity, and wise decision making. Other people believe American political, business, and social systems are unfairly structured so as to limit wealth building by certain segments of the population.

The Components of Wealth

The components of wealth can be divided into two broad categories: tangible assets and intangible assets. Tangible assets are things that have value in and of themselves. Examples include gold, land, houses, cars, boats, artwork, jewelry, and all other durable consumer goods with recognizable value in the marketplace. These are material possessions. Intangible assets are financial devices that have worth because they have perceived value. The most obvious examples are stocks and bonds. Other devices often counted as intangible assets include pensions (which are promises of future income), life insurance policies with cash value, and insurance policies on tangible assets, because they protect valuable resources.

The federal government does not measure the overall wealth of individual Americans or the population as a whole. It does compile data on related economic indicators that include wealth assets. These measures

are called net worth and personal income.

Net Worth

Net worth is the sum of all assets minus the sum of all liabilities (such as debts). The Federal Reserve Board, the national bank of the United States, computes the aggregate net worth of households and nonprofit organizations (NPOs) on a quarterly and annual basis. These values are published in tabular form in “ B.100 Balance Sheet of Households and Nonprofit Organizations ” as part of the Federal Reserve Statistical Release Z.1: Flow of Funds Accounts of the United States ( Table 8.1 shows the net worth data available as of March 2008 for the fourth quarter of 2007.

ASSETS. Overall, U.S. households and NPOs had assets of $72 trillion in the fourth quarter of 2007; of this, nearly $26.7 trillion was in tangible assets and $45.3 trillion was in financial assets. (See Table 8.1.) Between 1996 and 2007 tangible assets increased from roughly one-third of total assets to nearly 40%. (See Figure 8.1.) The Federal Reserve includes only three components in tangible assets: real estate, NPO equipment and software, and consumer durable goods. Real estate holdings of $22.5 trillion made up 84% of total tangible assets in the fourth quarter of 2007. (See Figure 8.2.) Consumer durable goods at $4 trillion accounted for 15% of the total, and NPO equipment and software at $240.8 billion encompassed only 1% of the total.

Financial assets were much more diverse. The largest components were pension fund reserves ($12.8 trillion, or 28% of the total), equity in noncorporate businesses ($7.9 trillion, or 17% of the total), and deposits and currency ($7.4 trillion, or 16% of the total). (See Figure 8.3.) Deposits include monies in checking and saving accounts and in money market funds.

Category: Forex

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