Wealth measures the value of all the assets of worth owned by a person, community, company, or country. Wealth is determined by taking the total market value of all physical and intangible assets owned, then subtracting all debts. Essentially, wealth is the accumulation of scarce resources.
Specific people, organizations, and nations are said to be wealthy when they are able to accumulate many valuable resources or goods. Wealth can be contrasted with income in that wealth is a stock and income is a flow, and it can be seen in either absolute or relative terms.
Key Takeaways
- Wealth is an accumulation of valuable economic resources that can be measured in terms of either real goods or money value.
- Net worth is the most common measure of wealth, determined by taking the total market value of all physical and intangible assets owned, then subtracting all debts.
- The concept of wealth is usually applied only to scarce economic goods; goods that are abundant and free for everyone provide no basis for relative comparisons across individuals.
- Unlike income, which is a flow variable, wealth measures the amount of valuable economic goods that have been accumulated at a given point in time.
- The relative differences in wealth between people are what we usually refer to in order to define who is wealthy or not.
Understanding Wealth
Wealth can be expressed in a variety of ways. In a purely material sense, wealth consists of all the real resources under one’s control. Financially, net worth is the most common expression of wealth.
Definitions and measures of wealth have been different over time among societies. In modern society, money is the most common means of measuring wealth. Measuring wealth in terms of money is an example of money’s function as a unit of account. The extent to which outside forces can manipulate the value of money can have a dramatic impact on measuring wealth in this way, but it provides a convenient common denominator for comparison.
Otherwise, land and even livestock can be used to measure and evaluate wealth. The ancient Egyptians, for instance, once measured wealth based on wheat. Herding cultures have often used sheep, horses, or cattle as measures of wealth.
Measuring Wealth
Measuring wealth in terms of money overcomes the problem of evaluating wealth in the form of different kinds of goods. These values can then be added or subtracted together. This, in turn, permits the convenient use of net worth as a measure of wealth. Net worth is equal to assets minus liabilities. For businesses, net worth is also known as shareholders’ equity or book value. In common sense terms, net worth expresses wealth as all the real resources under one’s control, excluding those that ultimately belong to someone else.
Wealth is a stock variable, as opposed to a flow variable like income. Wealth measures the amount of valuable economic goods accumulated at a given point in time; income measures the amount of money (or goods) obtained over a given interval of time. Income represents the addition to wealth over time (or subtraction, if it is negative).
A person whose net income is positive over time will become increasingly wealthy over time. For countries, gross domestic product (GDP) can be thought of as a measure of income (a flow variable), though it is often erroneously referred to as a measure of wealth (a stock variable).
Anyone who has accumulated a large quantity of net worth can be considered wealthy, but most people think of this term in more of a relative sense. Whether measured in terms of money and net worth or in commodities like wheat or sheep, total wealth can vary among individuals and groups. The relative differences in wealth between people are what we usually refer to in order to define who is wealthy or not.
Research has consistently shown that people’s perception of their own well-being and happiness depends much more on their estimates of wealth relative to other people than on absolute wealth. This is also part of why the concept of wealth is usually applied only to scarce economic goods; goods that are abundant and free for everyone provide no basis for relative comparisons across individuals.
The United States is home to most of the world’s wealthiest people, including 735 billionaires.
Arkansas-based retailer Walmart is one of the wealthiest corporations in the U.S., with annual revenue exceeding the GDP of many countries. For 2021, it recorded $559 billion in revenue, with a presence in 24 countries worldwide. Ranked number one on the Fortune 500 list in 2022, Walmart operates more than 10,500 stores globally and serves more than 220 million customers weekly.
$255.3 billion
The net worth of the world’s wealthiest person, Tesla/SpaceX CEO Elon Musk, as of Sept. 2, 2022.
Equally as impressive, wealthy ecommerce giant Amazon boasted revenue of $386 billion for 2021, earning it the number two position on Fortune’s list. Despite experiencing a leadership change and a shortage of workers, the company continued to flourish in 2021, posting profits more than 54% higher vs. 2020. Its market capitalization—$1.66 trillion as of March 31, 2022—has also positioned it as one of the wealthiest companies in the world.
How to Build Wealth
To build wealth, one must allocate a portion of their income to savings and investments over time.
The Influence of the Wealthy 1%
The top 1% of wage earners hold 31.9% of wealth in the United States as of June 29, 2022.
What is Wealth Management?
Wealth management refers to the financial, investment, and advisory services provided to clients with high net worth.
The Importance of Generational Wealth
Generational wealth comprises the assets passed down to successive, familial generations.
The Great Gatsby Curve
The Great Gatsby Curve illustrates the relationship between income inequality in a country and the potential for its citizens to achieve upward mobility. Graphs that depict these two variables suggest a strong positive correlation between inequality and a lack of upward advancement from one generation to the next.
Conclusion: The Perception of Wealth
The concept of wealth is subjective, largely depending on one’s perception and measure of value. For most, money is the common unit of measurement, and those with an abundance of it are deemed wealthy.
There are many strategies for amassing wealth; however, there is no one-size-fits-all solution. Despite variations in how it is expressed, wealth often affords access and opportunities that would ordinarily be inaccessible without it.
Related Terms: Net Worth, Market Value, Income, Physical Assets, Intangible Assets, Debts, Shareholders’ Equity, Book Value, Gross Domestic Product (GDP), Market Capitalization, Wealth Management, Generational Wealth
References
- Forbes. “The Countries with the Most Billionaires 2022”.
- Walmart Corporate. “Walmart Releases 2021 Annual Report and Proxy Statement”.
- Fortune. “Fortune 500: 2022”.
- Forbes. “The World’s Real-Time Billionaires”.
- Fortune. “Fortune 500 (2022): Amazon”.
- Federal Reserve Economic Data (FRED), Federal Reserve Bank of St. Louis. “Share of Total Net Worth Held by the Top 1% (99th to 100th Wealth Percentiles)”.
