Following up on our previous post, let’s drill down on the three components of the Life Portfolio that represent the most important parts of a household’s finances: income, debt, and assets. Examining your financial situation and how it has changed versus the typical American household, may provide important insight on your personal finances as you think about how you are doing, where you want to be, and how you can get there.
Income: Wages for the typical American family, as represented by the median, or “middle” of the middle-class, have not kept up with inflation over the past 20 years. In fact, that figure has actually declined since 2007 (Figure 1). However, several important metrics such as overall hiring trends, the number of new jobs created, and the increasing number of unfilled jobs suggest to us that wages should begin to increase to better reflect the job market.
Debt: This is often rated as Americans’ top financial concern1, and debt levels have been increasing since the end of the Great Recession. However, it’s important to look beyond our level of debt and consider our ability to pay for it. Years of low interest rates have increased our ability to service our growing debt, thereby keeping the overall debt burden at levels not seen since 1980 (Figure 2).
Assets: Americans have seen the biggest improvement in their asset levels since 2007 as compared to income and debt. As a result of the stock market’s more than 300% gain off its lows2 and a national recovery in home prices3, Americans’ net worth-the difference between assets and debt-is at historically high levels (Figure 3). However, the percentage of adults owning stock and home ownership rates both declined over the same period.
Our recent publication “How Healthy Is Your Life Portfolio?” combines these data series to gain a more holistic view of how these components have moved together over time.
Considering this view of the U.S. economy, where do you fit in? How could you improve your financial situation? Look carefully at your income and potential job opportunities; consider if you may benefit from a tightening labor market. When assessing your debt level, focus on your ability to service your debt. Consider your assets, and whether your investment portfolio, the value of your home, or any other investments have increased in value (more-so than your debt). If you’re saying to yourself “I’m doing well, but could I be doing great?” looking through the Life Portfolio lens can offer you a new perspective to answer that question.
1: 2017 MassMutual Middle America Financial Security Study
2: As measured by the S&P 500 Index.
3: As measured by the Case-Shiller Index of home prices.