# Methodology: Wealth-to-Money Ratio

This note documents the calculation behind the maintained dataset and the reading page.

## Maintained formulas

```text
Equity / M2 = (household equity holdings in billions) / (M2 in billions) * 100

Total wealth / M2 = (household net worth in billions) / (M2 in billions) * 100
```

The current maintained reading uses Q4 2025 Z.1 balance-sheet values and December 2025 M2.

```text
Equity / M2 = 67,772.125 / 22,353.6 * 100 = 303.18%

Total wealth / M2 = 175,254.847 / 22,353.6 * 100 = 784.01%
```

Rounded for prose, those are **303.2%** and **784.0%**.

**Takeaway:** the calculation is simple, but the interpretation depends heavily on which wealth series is used.

## Data sources

### M2 money supply, M2SL

| Attribute | Value |
|---|---|
| Source | Board of Governors of the Federal Reserve System |
| FRED series | [M2SL](https://fred.stlouisfed.org/series/M2SL) |
| Frequency | Monthly, seasonally adjusted |
| Units | Billions of US dollars |
| Latest value checked | March 2026: 22,686.0 |
| Last updated by FRED | April 28, 2026 |

M2 changed definition in May 2020. Before then, savings deposits were counted differently. After May 2020, the published M2 series includes the reclassified liquid-deposit structure described in the FRED notes.

### Household equity holdings, BOGZ1LM153064475Q

| Attribute | Value |
|---|---|
| Source | Federal Reserve Z.1 Financial Accounts |
| FRED series | [BOGZ1LM153064475Q](https://fred.stlouisfed.org/series/BOGZ1LM153064475Q) |
| Frequency | Quarterly, not seasonally adjusted, end of period |
| Units | Millions of US dollars |
| Latest value checked | Q4 2025: 67,772,125 |
| Last updated by FRED | March 19, 2026 |

The series covers directly and indirectly held corporate equities by households and nonprofit organizations at market value. It includes direct stock holdings, mutual funds, ETFs, and retirement-account equity exposure.

### Household net worth, BOGZ1FL192090005Q

| Attribute | Value |
|---|---|
| Source | Federal Reserve Z.1 Financial Accounts |
| FRED series | [BOGZ1FL192090005Q](https://fred.stlouisfed.org/series/BOGZ1FL192090005Q) |
| Frequency | Quarterly, not seasonally adjusted, end of period |
| Units | Millions of US dollars |
| Latest value checked | Q4 2025: 175,254,847 |
| Last updated by FRED | March 19, 2026 |

Net worth is total household assets minus liabilities. It includes real estate, equities, fixed income, pension entitlements, consumer durables, and other assets, less mortgages, consumer credit, and other liabilities.

**Takeaway:** the equity ratio is cleaner for market fragility. The net-worth ratio is broader but less liquid.

## Calculation procedure

1. Use end-of-quarter M2 for the same quarter as the Z.1 balance-sheet values.
2. Convert household equity holdings and household net worth from millions to billions.
3. Divide the wealth figure by M2.
4. Multiply by 100 to express the result as a percentage.
5. Keep the original source units in the CSV so the calculation can be audited later.

Example for Q4 2025:

| Field | Value |
|---|---:|
| M2 | 22,353.6 billions |
| Household equity holdings | 67,772,125 millions |
| Household equity holdings converted | 67,772.125 billions |
| Equity / M2 | 303.18% |
| Household net worth | 175,254,847 millions |
| Household net worth converted | 175,254.847 billions |
| Total wealth / M2 | 784.01% |

**Takeaway:** unit discipline matters here. Mixing millions and billions will move the answer by 1,000x.

## What the dataset is not

The maintained CSV is not a live trading signal. It is a small historical lens built from selected annual or quarter-end observations.

It is also not the same as a total stock market capitalization to M2 ratio. Broader market-cap series can be useful, but they need separate labeling. The current version keeps the main calculation tied to FRED household balance-sheet data so the source chain stays auditable.

**Takeaway:** do not compare a household-equity reading with a market-cap reading unless the source difference is explicit.

## Caveats

| Issue | Why it matters | Treatment |
|---|---|---|
| M2 definition change in May 2020 | The series has a structural break. | Note it in interpretation. |
| Quarterly and monthly data | Z.1 data arrives quarterly; M2 arrives monthly. | Use quarter-end M2. |
| Revisions | FRED and Z.1 values can be revised. | Store data vintage in prose. |
| Illiquid wealth | Net worth includes assets that cannot be sold quickly. | Treat net worth / M2 as systemic context. |
| Foreign capital | US assets are held globally, while M2 is domestic. | Do not treat the ratio as closed-system accounting. |
| Policy reaction | Central banks can expand liquidity under stress. | Read the ratio with policy context. |

**Takeaway:** the ratio describes pressure in the system. It does not tell you when that pressure releases.

## Update procedure

Update after each Z.1 release.

1. Check FRED M2SL for the latest quarter-end M2 value.
2. Check BOGZ1LM153064475Q for household equity holdings.
3. Check BOGZ1FL192090005Q for household net worth.
4. Update `data/wealth-money-ratios.csv` with source units preserved.
5. Recalculate `equity_m2_ratio` and `wealth_m2_ratio`.
6. Update `README.md` and `index.html` if the latest maintained reading changes.
7. Reopen the local page and check that labels, values, and footnotes still match.

**Takeaway:** the page should never show a more current conclusion than the data can support.

## References

1. Federal Reserve Bank of St. Louis, FRED series M2SL: https://fred.stlouisfed.org/series/M2SL
2. Federal Reserve Bank of St. Louis, FRED series BOGZ1LM153064475Q: https://fred.stlouisfed.org/series/BOGZ1LM153064475Q
3. Federal Reserve Bank of St. Louis, FRED series BOGZ1FL192090005Q: https://fred.stlouisfed.org/series/BOGZ1FL192090005Q
4. Ray Dalio, "The Big Dangers of Big Bubbles with Big Wealth Gaps": https://www.linkedin.com/pulse/big-dangers-bubbles-wealth-gaps-ray-dalio-s2fbe