Household Wealth Report: Silver Linings

Every quarter, the Federal Reserve releases a report on household wealth . Not surprising during a recession is the fact that household wealth is declining. For the 7th straight quarter the average net worth of the American household has fallen . Falling home values and losses in investment portfolios (mainly in the form of retirement accounts) contributed to declining net worth in a major way. However, the news wasn’t all bad; there were some definite silver linings in the household wealth report. MarketWatch reports on some of the good news :

Liabilities of households fell by $114 billion in the quarter, as consumers reduced their debts at an annual rate of 1.1% . Consumer credit card debt fell at a 3.5% annual rate, the largest decline since 1980.

Disposable personal income rose at a 5.4% annual rate in the quarter to $10.8 trillion annualized.

The news that people are reducing their credit card debt is encouraging. The recession has certainly prompted a change in the way people handle their finances. For the first time in almost 30 years, credit card debt is declining significantly. Additionally, it appears that disposable income is on the rise. This is a sign that people are saving their money — at least a little bit.

Changing our personal finance habits as a society is vital if we want to reshape our economy into one that is less dependent on rapid, unsustainable growth fueled by consumer debt . The Federal Reserve’s report, though somewhat discouraging in terms average household wealth, also contains clues that perhaps we are ready for a change.

The real test, though, will come as the economy starts to recover. Will we take the lessons of this recession to heart? Or will we abondon solid personal finance fundamentals again?

image source: TW Collins via Flickr