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Do You Have a Negative Wealth?

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Is it better to invest money in a house or a car? Is education debt okay? Chuck Bentley's answers just might surprise you.

According to the New York Federal Reserve, 14% of the U.S. population lives in households that have negative wealth.

In plain terms, these are households who owe more money than they have the ability to pay, which means they don’t just have zero net worth, they are upside down.

But what does a negative wealth household look like?

VisualCapitalists, a firm that provides graphic illustration on financial topics, compares the data on negative wealth households with the data on their positive counterparts. There are some obvious and stark contrasts.

“Households that are deep in the red have the majority of their wealth in the family car – automobiles make up 45% of the value of their total assets – while housing makes up 20% of their assets by value.

For positive wealth households, it is the reverse: 40% of wealth is in the home, and 15% in vehicles.”

There is an obvious challenge here. Houses have the ability to appreciate in value while cars typically only depreciate.

Another key point: the composition of debt is also very telling. Negative wealth households have a whopping 47% of debt in student loans, while positive houses have just 6%.

What can we learn from this data?  It is better to put money in a house than a car and it is better not to use debt for a college education.  High car payments and high student loan debt are not helpful to your financial well being.

My advice is to seek to sell a car to eliminate any automobile debt and work off student loan debt as rapidly as possible.  Always avoid debt and you are much more likely to have a positive net worth.

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