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Tom: Another positive story this morning – Americans are growing their wealth?

 Mellody: This certainly is a good story, Tom. During the great recession, Americans’ net worth plummeted as stock and home values sank. Household wealth tumbled to $55 trillion in the first quarter of 2009 from a pre-recession peak of $67.9 trillion. Wealth didn’t surpass that peak until the third quarter of 2012. Now, things are really turning around! In the last quarter of 2014, total household wealth in the United States hit an all-time record! Household wealth rose 1.9% to nearly $83 trillion, the Federal Reserve said last week. This is the latest in a number of signs we have been seeing that shows that the economy has a strong foundation and is strengthening.

 Tom: That certainly sounds good! What is behind it?

 Mellody: there are a number of factors that have helped us get to this point. However, the main piece of this for everyday Americans is the improving housing market. You might remember a few weeks back when I was talking about how important housing values are for the black community in America, Tom. Housing wealth is certainly plays an outsized role in our wealth, but housing is big piece of wealth accrual for all lower and middle class Americans, and the recovery of housing prices is paying dividends. In q4 alone, the value of Americans’ homes rose $356 billion.

 Tom: How about the role of stocks?

 Mellody: Stocks have also played a very big role in driving up the value of America’s household wealth. This month marks the sixth year the markets have been on a bull run, and the indices continue to push to record levels. As a result, stock and mutual fund portfolios gained $742 billion in the final 3 months of 2014 and have continue to accrue wealth in the first part of this year.

Beyond the simple growth in stock portfolios, Americans have also taken advantage of some recent windfalls, including the cash saved due to cheaper gas prices, to improve their financial health by putting more money toward their retirement funds. These improved saving and investment habits are also very important to continued improvement on the household wealth front.

 Tom: In terms of housing market and stock market improvements, is that benefitting all Americans in the same way?

 Mellody: Unfortunately, no. In order to benefit from this long-running bull market, you had to be in the market. A study released by the federal reserve last fall revealed that stock ownership has dropped to an 18 year low of 48.8%, the lowest level since 1995, so under half of Americans have benefitted from the recent boom. Additionally, stock ownership is extremely skewed by income. An incredible 93% of the wealthiest 10% of Americans own stocks. That’s nearly twice the level for the middle 50% and far more than the 26% ownership rate for the bottom 40% of Americans.

Finally, there is a stock ownership gap by race. Black Americans are 35% less likely than whites of similar means to invest in the stock market, which has had a devastating effect on our ability to accumulate wealth when the market rises. Because many Americans lost faith in the markets during the great recession, it has kept them out of the recent positive period. We need to do better when it comes to involving more Americans – and particularly larger parts of our community – in the stock market.

Tom: And what about housing?

 Mellody: As I have mentioned, our community holds a disproportionate amount of our wealth in housing, so an improving housing market is helping rebuild some of the black wealth lost in great recession. However, research does show that there is an appreciation gap based on racial factors. Homes in majority Black neighborhoods do not appreciate as much as homes in overwhelmingly white neighborhoods. And overall, homeownership does not generate the kind of returns that the market will. However, an improving housing sector does mean good things for black Americans.

Tom: So what does this increased wealth mean for the economy?

 Mellody: Overall it is very good news, Tom. As I mentioned, the great recession has a big impact on the financial habits of many Americans. The savings rate went up across the board, and people began paying down their debts. Higher stock and home values can make people feel more financially secure. Now, with these improvements in household wealth, we can expect people will start to spend again. Considering that 70 percent of the economy is driven by consumer spending, this is good news for the economy. And it is not just household wealth that is rising – U.S. corporations are also seeing sharp improvements in their finances. Businesses amassed $2 trillion in cash by the end of last year— a record high — up from less than $1.9 trillion three months earlier. If balance sheets continue to improve, companies could start to raise wages, which would also benefit the economy.

 Tom: That would be great, Mellody! Hopefully they are listening to you! Have a great week!

Mellody: You too, Tom!

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Mellody is president of Ariel Investments, a Chicago-based money management firm that serves individual investors and retirement plans through its no-load mutual funds and separate accounts.  Additionally, she is a regular financial contributor and analyst for CBS News.

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