• The table above shows the relationship between personal consumption
    and net worth in the United States as reported by the Bureau of
    Economic Analysis and the Federal Reserve.
  • The relationship between wealth and consumption was largely stable in the 1950s and 1960s.
  • Inflation in the 1970s led to an increase in consumption as a share
    of net worth. This makes intuitive sense; if money is not a good store
    of value, it does not make much sense to save up money.
  • In the 1980s the relationship returned to a period of relative stability.
  • During the 1990s and 2000s, the stock market generated wealth for
    many and pushed down the ratio of consumption to net worth. It hit a
    low of 15.2 percent in 2000. The dot com bust returned the share to
    18.9 percent in 2002 before a market surge and real estate boom pushed
    the share back down to 15 percent in 2006 and 2007.
  • As of 2008 quarter 4, the share is 19.3 percent. What happens to the
    ratio going forward depends on both consumption and net worth. Changes
    in net worth have tended to dwarf consumption related changes.