Households in California tend to have more wealth than those in other states, despite holding more debt. At a virtual PPIC event last week, Tess Thorman outlined a recent report that looks at assets, debt, and wealth in California; report coauthor Shannon McConville and Thorman then answered audience questions.
While the term wealth may evoke the idea of considerable financial resources, it essentially boils down to “what you own minus what you owe,” Thorman said. According to their estimates, median net worth in California is $288,000, compared to $180,000 elsewhere. Median assets in California add up to $494,000; median debt—among the 75% of households that have debt—is $103,000. Both are lower in the rest of the country, with assets at $311,000 and debt at $74,000.
Bank accounts (96% of households) and vehicle equity (82%) are the most widely held assets in California; retirement accounts (60%) are also fairly common. These assets are held at about the same proportion in the rest of the nation—but home ownership is a different story. Only about half of Californians hold some home equity compared to 63% of households elsewhere—but the value is far higher in California, around $484,000 versus $178,000. “For most [California] households, home equity is where they hold the lion’s share of their wealth,” Thorman noted.
What about debt? About 50% of households in California and elsewhere have some kind of debt that isn’t tied to a tangible asset such as a house or a car. Credit card debt is the most common type of this so-called unsecured debt (40%) and is about $6,000 at the median in both California and the rest of the nation. Student loan debt is less common (17% in both California and elsewhere) but runs much higher in dollar value (around $25,000). Medical and other unsecured debt is much less common in California than elsewhere (10% vs. 17%)—likely reflecting California’s ACA Medicaid expansion.
In California, assets and debt vary significantly according to demographic characteristics such as age, education level, and race/ethnicity. “The reality is that each of these factors interacts in ways that […] impact wealth levels,” Thorman said. For example, Latino households tend to be younger and are less likely to include college degree holders—both of which are associated with lower home ownership.
California also has a wide gap between the highest and lowest levels of wealth—households near the top of the distribution have net worth over 100 times more than those near the bottom, about $1.3 million compared to $12,000. About 7% of California households owe more than the value of their assets.
A variety of state and local policies and programs are designed to help Californians build up assets and manage debt, from assistance for first-time homeowners to support for small businesses. Many of these approaches are backed by some evidence of success but further research into their short- and long-term impacts is critical. Most important is for policymakers and other stakeholders to know “how many different ways there are to build wealth and for policy to make sure that the benefits of wealth are broadly accessible,” Thorman said.
