A person has $15,000 in savings, a car worth $8,000, $5,000 in credit card debt, and a $20,000 student loan balance. What is their net worth?
A-$2,000
B$28,000
C$18,000
D$2,000
Net worth = Assets − Liabilities = ($15,000 + $8,000) − ($5,000 + $20,000) = $23,000 − $25,000 = −$2,000. Both debts are liabilities regardless of what they funded. Many people accidentally omit one debt category or confuse gross assets with net worth.
Question 2 True / False
A person earning $150,000 per year should have a higher net worth than someone earning $60,000 per year.
TTrue
FFalse
Answer: False
Net worth is determined by what you own minus what you owe — not by income. A high earner who spends everything, carries large loan balances, and has minimal savings can have a lower (or even negative) net worth than a moderate earner who saves consistently and carries little debt. Income affects the potential to accumulate net worth, but spending and debt patterns determine the actual outcome.
Question 3 Short Answer
Why is tracking net worth monthly a more informative financial health metric than only monitoring monthly cash flow?
Think about your answer, then reveal below.
Model answer: Cash flow shows what moved in and out during one period, but net worth reveals the cumulative result of all financial decisions over time — whether assets are growing faster than liabilities. You can have positive monthly cash flow and still have declining net worth if you are simultaneously accumulating debt faster than you are saving.
A budget tells you if you're living within your means this month. Net worth tells you whether you're building or eroding financial security over years. Both matter, but net worth is the longer-run signal. This is why balance sheets, not income statements, are the primary measure of a company's financial health — the same principle applies personally.