The Federal Reserve has been reporting household net worth on a quarterly basis for well over 50 years. Though household net worth has been declining for nearly two years, the fourth quarter of 2008 saw the largest drop ever: 9%.

In some ways, a decline in net worth doesn’t really mean that a household is worse off. Falling home valuations, which often constitute the largest factor to net worth, really only matter when you are trying to sell your home. Of course, as the value of a home relative to the balance owed declines, other constraints may be placed on the household, such as an inability to take out a home equity line of credit. Also, foreclosure proceedings or other financial difficulty could force the sale of a home, in which case the decline could have a real impact.

Rising unemployment is another likely contributor to the decline in household net worth. When a major income source is lost, assets such as bank account balances and emergency funds tend to decline and liabilities such as high interest credit card debt tend to rise. Both adversely affect net worth.

What does the latest decline mean in real dollar terms? First, we have to consider the average net worth in dollars. In February, the Survey of Consumer Finances was published using data from 2007. That report is published every three years. At the time, the average household net worth in the US was $556,000. That number is skewed by older households, as net worth tends to grow with age. For example, in households where the primary wage earner was under age 35, the average net worth was only $106,000. With the latest 9% decline, net worth has been reduced by about 20% since the 2007 peak. That means this latest 9% drop reduced the average household’s net worth by about $44,000.

Obviously, average values are probably skewed by the losses of households with higher net worth, so your decline was likely much less. Even so, the latest report is certainly a cause for concern. Net worth is just one metric for measuring your financial health, but keeping rough track of the number can give you a general idea of how your household economy is performing.

How has your net worth changed in the past three months?

As anyone who has tracked their finances can tell you, knowing where your money goes is the first step in eliminating waste and saving as much money as possible. Tracking other aspects of our lives gives similar insight and the possibility of similar savings. Google’s philanthropic group, google.org, is developing technology to allow home energy use to be tracked and analyzed with ease.

The Google Power Meter will present a graphical view of data from advanced energy meters in near real time. Although 40 million of these “smart meters” are already in use today, many of them don’t display the collected information to the consumer in a meaningful way. The Google Power Meter intends to change that. By presenting energy use in an easy to understand format, finding ways to reduce consumption should be easier to identify.

Some of the hypothetical questions that could be answered by using the service were:

• How much does it cost to leave your TV on all day?
• What about turning your air-conditioning 1 degree cooler?
• Which uses more power every month — your fridge or your dishwasher?
• Is your household more or less energy-efficient than similar homes in your neighborhood?

Clearly, the visibility that would enable you to answer those questions would also allow you to save money. As with many environmental initiatives, the motivation behind using such a service (which will be free) can come in many different forms. Some people will use the information to reduce their carbon footprint. Others will do it purely to save on their electric bill. Many will take action for a combination of those reasons.

Having more information is an important first step in understanding any problem. Organizing and presenting that information in a meaningful way is even more critical. The Google Power Meter, coupled with advanced energy meters throughout your home, should give you the necessary insight into your energy use to make appropriate changes, regardless of your motivation.

What’s more important to you, saving the environment or saving money on your energy bills?

In the perfect economic model, supply and demand meet at that magical inflection point where the optimal price is achieved. Higher prices would reduce demand and leave a surplus of supply, and lower prices would raise demand to the point where supply could not keep up. One way to raise prices and increase demand is to create an artificial supply shortage.

Companies are often accused of withholding supply any time they are unable to keep up with demand. Tyco and Nintendo are classic examples, as both were suspected of creating demand by limiting their products, Tickle Me Elmo and Wii, respectively. In some cases, it is simply a matter of over-marketing a product or a true inability to meet unexpectedly high demand.

One company that doesn’t try to hide its price manipulation is Disney. The company only sells its movies for a limited time and then put them back in the “Disney Vault” for years at a time. This practice has traditionally allowed Disney to increase demand both before the product goes into the vault and again when it comes back out.

The efforts by Disney are increasingly less successful thanks to eBay and similar resale sites. We’ve all heard the stories of desperate consumers getting gouged on eBay when they simply have to have a product that is otherwise unavailable. That continues to be the case when a true supply shortage exists. But when supply is artificially reduced, eBay actually becomes a consumer’s best friend. Initially this might not have been the case when only a few people were savvy enough to load up on merchandise that was soon to be in short supply. Now, a phenomenon similar to eBay’s effect on Woot Arbitrage is taking place. So many people realize that Disney movies will be in greater demand once in the vault that they are loading up on their supply, which is readily available, before that date. This leads to tons of supply in the secondary market, keeping prices low.

New products in short supply will continue to keep prices high. Fortunately, some sales tricks, like those of Disney, are far less damaging to consumers than they once were. Before paying a premium price for a product in high demand, ask yourself whether it’s true demand or simply the marketing and sales tactics of the manufacturer artificially inflating prices.

What other examples of artificial supply shortages have you experienced?

So often we seem to do the opposite of what is necessary for our financial health. We buy high and sell low. We forgo building an emergency fund when times are good. Now, at a time when excellent financial health is more important than ever, many Americans are paying down less of their credit card debt.

A recent article in USA Today reported that the credit card payment rate — the percentage of outstanding card debt paid — fell by 2.5 percentage points to 16.1%. That was one of the largest monthly drops in the percentage ever. Not only are consumers paying less, but they are doing so on less debt. While it’s a positive sign that consumers have less debt, that also means they should be able to pay it down more quickly.

The recently unemployed may have no choice but to reduce their payments and that is certainly understandable. Those who feel their jobs may be at risk are probably reducing payments as well, to keep as much cash on hand as possible. These two groups of people are probably a major component of the decline. Again, such circumstances may make reduced payments the best course of action. For the rest of us, though, it’s the wrong approach.

Similar to how those without debt should be building their emergency funds now (since an emergency is more likely), consumers with credit card debt should be working to eliminate that debt as quickly as possible while they’re still able to do so. Paying down debt not only reduces interest and fees, but it also makes the remainder more affordable in the future. If you were to lose your job a few months from now, wouldn’t it be a lot easier to survive without the burden of credit card debt? You’re probably cutting back on new purchases already, so why not tackle your outstanding debt while you are able to. To accelerate the process, you can consolidate your high interest credit card debt with a more affordable P2P loan from Lending Club.

Finding yourself in a financial crisis is hard enough on its own, but is exponentially worse as more credit card debt is added to the equation. Buck the trend and start paying off more of your credit card debt now, before it’s too late.

Have you adjusted your payments as a result of the economy?

The current state of the economy is generating a massive group of consumers who are trying to live on a budget for the first time. This is certainly an encouraging development, but many frugal newcomers are likely to make a common rookie mistake.

Those looking to cut costs for the first time often shift to products with the lowest prices. Their logic is sound – paying less means more money in their pocket – but the criterion is flawed. Price is certainly important, but value – the balance of price and quality – is what really matters. There’s a fine line between buying inexpensive products and buying cheap ones.

At times, you might not notice any difference in using a lower cost item. Generic forms of many name brand products often fall into this category. These private label items are the best deals to find. In other cases, the difference in quality for lower priced items will merely reduce your enjoyment from the experience. You may find that your cheaper speaker system doesn’t sound quite as good, though it still works. These types of tradeoffs can be justified, depending on what is important to you. Finally, there is the case where a lower cost item wears out quickly, doesn’t satisfy your need, or is simply inferior to a higher quality alternative. You’ll end up spending more as you replace the item with the one you should have bought or continue to purchase the cheap product more frequently.

It would be nice to have a list of which products are worth paying more in exchange for better quality. Unfortunately, such a list is impractical to compile because everyone’s list would probably be different. The common denominator for everyone to remember is simply that paying less can end up costing more. As you gain experience in cutting costs, you’ll discover the places where cutting too much quality starts to outweigh the lower prices.

What products are worth the premium price of high quality for you?