Solvency.

In plain English

Solvency is the condition of owning assets worth more than the total of every debt owed, so obligations can be met over the long run rather than only this month. For a household it is net worth: everything owned at a realistic value minus every balance owed. A person can be solvent and still short of cash this week, and can have cash on hand while being deeply insolvent. Lenders look at both, because solvency shows whether the debt can ever be repaid while liquidity shows whether this month's payment will arrive.

01Why it matters

Solvency is the number that decides whether time fixes a money problem or deepens it, since an insolvent balance sheet gets worse while interest accrues.

02The math, step by step

Say a household owns a 320,000 dollar home, 40,000 dollars of investments, and a 12,000 dollar car, so 372,000 dollars of assets. Debts are a 290,000 dollar mortgage, 18,000 dollars of student loans, and 9,000 dollars on cards, so 317,000 dollars. Net worth is 55,000 dollars, and the household is solvent.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

Every figure on this page is sourced to a primary document. Tap to open the original.