I owe more wealth than I own

El_Torro

Being an exciting guy I've just totalled up all my wealth: My cash, my shares, my pensions and the equity in my properties. I then totalled up my debt (two mortgages) and realised that I actually owe more wealth than I own. I haven't totalled up the value of my possessions but that won't make up the difference.

So basically if the banks called in my debts tomorrow, stripped me of my wealth and possessions then I would still owe them money. The fact that the chances of this happening are basically zero somehow doesn't instill me with confidence.

I assume I'm not alone in this situation. Is this worrying or just an indictment of the system of credit that most of us are teetering on?

Libber

When you're doing that calculation, you need to count the market value of your properties rather than the equity. By doing it as you have, you've effectively double-counted the value of your debt.

the_flying_pig

Libber wrote: »

When you're doing that calculation, you need to count the market value of your properties rather than the equity. By doing it as you have, you've effectively double-counted the value of your debt.

that, er, must be right :think:.

HappyMJ

El_Torro wrote: »

Being an exciting guy I've just totalled up all my wealth: My cash, my shares, my pensions and the equity in my properties. I then totalled up my debt (two mortgages) and realised that I actually owe more wealth than I own. I haven't totalled up the value of my possessions but that won't make up the difference.

So basically if the banks called in my debts tomorrow, stripped me of my wealth and possessions then I would still owe them money. The fact that the chances of this happening are basically zero somehow doesn't instill me with confidence.

I assume I'm not alone in this situation. Is this worrying or just an indictment of the system of credit that most of us are teetering on?

You could declare yourself bankrupt. Your pensions would be protected from bankruptcy. Your house if in negative equity would be safe from sale if you can keep up the repayments and you would clear all of your debt.

You are not alone. People who purchased property in 2007 may still be in negative equity today.

El_Torro

Libber wrote: »

When you're doing that calculation, you need to count the market value of your properties rather than the equity. By doing it as you have, you've effectively double-counted the value of your debt.

Er, yeah, I forgot that crucial thing that I could sell the properties to pay off the mortgage debt.

Panic over!

There was a point in there somewhere about us having a credit culture though.

MJ12

El_Torro wrote: »

Being an exciting guy I've just totalled up all my wealth: My cash, my shares, my pensions and the equity in my properties. I then totalled up my debt (two mortgages) and realised that I actually owe more wealth than I own. I haven't totalled up the value of my possessions but that won't make up the difference.

So basically if the banks called in my debts tomorrow, stripped me of my wealth and possessions then I would still owe them money. The fact that the chances of this happening are basically zero somehow doesn't instill me with confidence.

I assume I'm not alone in this situation. Is this worrying or just an indictment of the system of credit that most of us are teetering on?

You are not alone.

Masomnia

I owe more than I own, mainly because of student debt though.

Generali

I am lucky enough to have a positive net worth. Not a huge one but my liquid assets exceed all of my debt. I don't count my pension in this as it is so illiquid.

CLAPTON

Masomnia wrote: »

I owe more than I own, mainly because of student debt though.

its not a real debt though as it only defines a cash flow related to salary

Generali

CLAPTON wrote: »

its not a real debt though as it only defines a cash flow related to salary

I believe the accounting term is a contingent liability, i.e. the liability is contingent on something else happening.

martinsurrey

Generali wrote: »

I believe the accounting term is a contingent liability, i.e. the liability is contingent on something else happening.

no its not :-P it is a full blown liability, but its payment terms are such that its got indeterminate payment dates, as such the fair value of the debt is reduced (under IFRS).

https://en.wikipedia.org/wiki/IAS_37

A liability is contingent if its existence is only confirmed by a future event (such as the result of a court case), in this case, the debt 100% exists, its only its repayment profile that is uncertain.

but I agree with the sentiment, its really a tax on employment.