How is net worth defined?

Net worth is defined as the total of one's financial assets minus total financial liabilities. This definition captures the essence of an individual's financial position by considering both the things they own (assets) and what they owe (liabilities).

Financial assets include cash, investments, real estate, and any other valuable resources that can contribute to an individual’s wealth. On the other hand, financial liabilities consist of debts such as mortgages, loans, and credit card balances. By subtracting liabilities from assets, net worth provides a clear picture of a person's financial health and stability, showing how much they would have left if they sold all their assets and paid off all their debts.

The other options do not accurately represent the concept of net worth. For instance, total income earned over a lifetime measures earning capacity rather than current wealth. The amount saved in a savings account indicates savings but does not encompass total financial health. Lastly, considering only the value of physical possessions neglects many other valuable assets and liabilities that contribute to net worth. Therefore, the correct definition effectively encompasses all aspects of financial standing.