Yeah, comparing net worth is a terrible way of comparing wealth between individuals. Anyone who is fresh out of college with student loan debt, or who recently bought a house on a mortgage, has negative net worth.
If you're going to compare against collective net worth, then I personally have greater net worth than 25% of America, and the entire American federal government! Woo, I must be rich, right? Well, no, I've just paid off my student debt and don't have a mortgage. On the up side, I don't have any debt. On the down side, I don't have much in the way of equity, while some people with negative net worth have substantially more equity than I do, and if they, say, decided to sell their house and move to an apartment would suddenly have considerably more net worth than I do.
"Net worth" is not wealth. Measuring wealth is a somewhat difficult thing, but net worth is a fairly poor way of measuring it.
Generally buying a house should not by itself give you a negative net worth. Net worth = Assets - Debts, so when you buy a house you generally get an asset of $X (your house) and a Debt of 80% of X (your mortgage). You 20% of equity will simply be a transfer from a cash account into an asset. The act of buying a house will decrease your net worth because of closing costs but it probably won't make you go negative by itself unless you put the closing costs on a credit card.
Sorry, you're right, the value of the house does count towards your net worth.
However, if you already have some student loan debt and the value of your house declines due to the housing crunch, you can easily be in the negative on "net worth", while still having more actual wealth than someone who's at 0.
However it works out, I've seen figures citing 25% of American families as having negative net worth. But I don't think that means that they actually have negative "wealth", nor is it all that useful to point to someone who has 0 net worth and say that they are wealthier than 25% of America combined.
I think you're using "wealth" to mean "assets" which I don't think is a useful number for any of these comparisons. In the example you give where a person has a house which declined in value and some student loans, they do have a negative net worth but they are also worse off than the person with 0 assets and 0 debts.
Having the house that they need to make payments on means that not only do they have 0 or negative net worth, they also have strict cash flow requirements which the person with 0 assets and 0 debts does not have.
I mostly agree with you, but I think you're going a bit too far: Someone living on the street, having no income, would have 0 assets and might have 0 debt (until they need medical attention...).
For someone with a family, struggling to keep the house is certainly better than living on the street. Still, being in a credit crunch could of course lead to that family being evicted, so yes, negative net worth isn't great.
If you're going to compare against collective net worth, then I personally have greater net worth than 25% of America, and the entire American federal government! Woo, I must be rich, right? Well, no, I've just paid off my student debt and don't have a mortgage. On the up side, I don't have any debt. On the down side, I don't have much in the way of equity, while some people with negative net worth have substantially more equity than I do, and if they, say, decided to sell their house and move to an apartment would suddenly have considerably more net worth than I do.
"Net worth" is not wealth. Measuring wealth is a somewhat difficult thing, but net worth is a fairly poor way of measuring it.