Households and businesses are taking on more debt
The savings rate fell in 2025.
March 19, 2026
Household net worth increased $2.2 trillion to a new record level of $181 trillion in the final quarter of last year, providing the impetus for upper income households to continue their consumption. The increase in net worth sat right in the middle of the $1 to $3 trillion we expected; that was implied by the 2.3% rise in the S&P 500 in the fourth quarter of 2025.
The headline gain in net worth masks key underlying movements in two components. Financial assets, comprising stocks, mutual funds and pensions, increased $2.6 trillion. Nonfinancial assets, mainly consisting of residential real estate, fell $354 billion. The Pacific and South Atlantic regions posted annual price declines. Ongoing affordability issues and return-to-work mandates are undoing many of the housing moves we saw during the pandemic.
Both business and household sector debt climbed at a similar pace in the fourth quarter. Household borrowing increased 3.3% while that for corporate businesses (nonfinancial) rose at a 3.2% annual rate.
Loan growth was supported by easier conditions at banks for commercial and industrial loans for middle and larger enterprises. Expanding industrial output in 2025 helped, following two years of contraction.
Households took on more consumer debt and even tapped savings to continue spending. Consumer credit grew at nearly a 3% annual pace at the same time mortgage debt rose 2%. The savings rate ended 2025 at 4%, down from 5.2% at the start of the year.
Fewer Federal Reserve policy makers are forecasting rate cuts given the upward pressure on inflation.
Ken Kim
KPMG Senior Economist
Bottom Line
The record run-up in the S&P 500 fueled the surge in household net worth last year, offsetting the drag from weaker residential real estate. As the first quarter of this year draws to a close, equity markets have been hit by the sharp increase in energy prices and long-term rates due to the war with Iran. The S&P 500 has lost 4% this year. Fewer Federal Reserve policy makers are forecasting rate cuts given the upward pressure on inflation; some raised the possibility of a rate hike at the Fed meeting this week.
Residential investment is out of the running as a source of economic growth for the first half. We do not expect to see stocks bolstering household net worth as they had previously.
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The positive wealth effect is helping to drive consumption.
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