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The statistics and data on who holds wealth in America can be shocking to read: The bottom 50 percent of households only hold 2.3% of total U.S. household wealth while the top 1% of households hold more than a third of total U.S. household wealth, according to 2021 data from the Federal Reserve.
Building wealth may be a far off thought for many of those struggling with medical debt, student loans, rising rent prices and inflation. However, knowing how families can grow wealth is key to understanding why so many American families are struggling to build wealth in the first place. A new report from the Aspen Institute identified one precondition and five conditions that low and middle income families need to meet in order to start generating wealth.
Select spoke with Ida Rademacher, Executive Director of financial security at The Aspen Institute, about what those conditions were and what individuals, employers and policymakers can do to encourage wealth building for families.
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Financial stability is key to building wealth
Wealth, simply put, is a measure of the value of assets, minus any debts and liabilities, that a person owns. You can calculate your wealth by taking the value of your assets (i.e. car, home, investments in a brokerage account) and subtracting your debts (like a mortgage, student loans, medical bills).
So why is it important for families to have wealth and to generate more of it? Well, there are a variety of reasons.
Wealth can improve your physical and mental health — having chronic medical conditions or disabilities and getting treatment can be costly, so having money can make it easier to afford healthcare or relieve the mental stress that comes along with being in a bad financial situation. Families also use wealth to help give future generations a leg up through properties, inheritances or investments. Additionally, holding wealth promotes financial resilience so families can quickly pick themselves back up after an unexpected event like a job loss or car accident.
The one precondition to wealth building that researchers identified was financial stability. Financial stability means having a positive cash flow, no harmful debt, an emergency fund and public and workplace benefits, says Rademacher. Families need to have a positive cash flow, or income that regularly exceeds the value of …….