Editor’s note: Dr. Mike Walden is a William Neal Reynolds Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of N.C. State University’s College of Agriculture and Life Sciences. He teaches and writes on personal finance, economic outlook and public policy.

RALEIGH, N.C. – More than any recession in 70 years, the recent economic downtown witnessed a collapse of household wealth. The value of our wealth — the difference between what we own and what we owe, dropped an amazing $13 trillion, a 20 percent plunge, from 2007 to 2008. The loss came in both major categories of household wealth, in financial assets (stocks, bonds, mutual funds, etc.) as well as real estate assets (for most, the value of their home).

The lost wealth was a crushing blow to our personal finances. It meant the massive borrowing and resulting debts that many accumulated during the 1990s and 2000s couldn’t be sustained. For some, the only alternative was bankruptcy or perhaps foreclosure on their home. For others, it meant forced frugality and reduced sales — and jobs — for retailers and other sellers.

A deadly downward spiral was thus established. Lower household wealth meant less household spending, which in turn, led to fewer business sales and jobs, which then resulted in even lower household income and wealth and tighter spending and still lower sales, etc.

Therefore, household wealth is one of the keys to our economy. For the economy to fully recover, our wealth will have to improve first.

So where are we now with this key economic indicator? Fortunately, every three months the Federal Reserve gives us an update. The most recent information through the first three months of 2012 was just recently released.

The statistics show that collectively the personal finances of households are in much better shape today than they were at the depth of the recession in 2008. Three-quarters of the household wealth lost during the recession has now been recovered. However, all of this rebound was due to the recovery of financial assets. The total value of real estate assets has improved only very modestly.

At the same time that the value of financial assets has been increasing, households have become tighter with their borrowing. The total value of household debt today is down 6 percent from its high in 2007. The largest decline has been in mortgage debt; some of it due to foreclosures and bankruptcies. But consumer credit balances (mainly credit cards) are also lower today than five years ago, suggesting households have voluntarily been restraining their spending.

There’s other good news on the debt front. Severely late loan delinquencies are off their recession peaks. For example, the percentage of credit card payments three or more months late is now 11 percent, down from 14 percent two years ago. Bankruptcies and foreclosures have also been trending lower. Yet, all these measures are still considerably above their levels prior to the recession.

It’s interesting to contrast the financial trends of households with those of businesses. Businesses actually fell into a slightly larger wealth hole than households, with aggregate business wealth dropping 25 percent during the recession. And similar to households, businesses have dug out of this hole through a combination of a rise in their assets values and a reduction in debt.

The big difference is that businesses have begun borrowing again. In fact, business debt dropped only one year, from 2008 to 2009, and since then has risen each year. Many economists see this as a good sign, as business borrowing is one indicator of optimism about the economic future.

The conclusion from all this number crunching is that personal finances are in much better shape today than they have been in years. Wealth has returned, household debt payments as a percent of disposable income are back to 1990 levels, delinquencies and late payments are down, and homeowners’ equity is beginning to rise. Certainly, many households are still not financially secure, but on average they are moving in a positive direction.

Over 70 cents of every dollar spent in our economy is by households. Therefore, as the household goes, so goes our economy. Household personal finances are starting to make a comeback. But one big question is, Can “it” happen again? By it, I mean the free-wheeling borrowing that led to record high personal debt levels and which set up many households for a crash when the values of stocks and homes fell off the cliff.

Of course, it can happen again; history is full of examples of repeats. But at least in this economist’s opinion, the financial trials and tribulations of the past five years will leave a significant impression — at least for a while — on households, similar to what the Great Depression of the 1930s did to my parents’ view of finances. But, of course, you decide if I’m too optimistic!