Wealth Definition - Investopedia

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 ... TableofContents Expand TableofContents WhatIsWealth? UnderstandingWealth HowtoMeasureWealth HowDoYouBuildWealth? HowMuchWealthDoestheTop1%Own? WhatIsWealthManagement? WhatIsGenerationalWealth? WhatistheGreatGatsbyCurve? WhatIsWealthInequality? BottomLine Investopedia Economy WhatIsWealth? Wealthmeasuresthevalueofalltheassetsofworthownedbyaperson,community,company,orcountry.Wealthisdeterminedbytakingthetotalmarketvalueofallphysicalandintangibleassetsowned,thensubtractingalldebts.Essentially,wealthistheaccumulationofscarceresources. Specificpeople,organizations,andnationsaresaidtobewealthywhentheyareabletoaccumulatemanyvaluableresourcesorgoods.Wealthcanbecontrastedtoincomeinthatwealthisastockandincomeisaflow,anditcanbeseenineitherabsoluteorrelativeterms. KeyTakeaways Wealthisanaccumulationofvaluableeconomicresourcesthatcanbemeasuredintermsofeitherrealgoodsormoneyvalue.Networthisthemostcommonmeasureofwealth,determinedbytakingthetotalmarketvalueofallphysicalandintangibleassetsowned,thensubtractingalldebts.Theconceptofwealthisusuallyappliedonlytoscarceeconomicgoods;goodsthatareabundantandfreeforeveryoneprovidenobasisforrelativecomparisonsacrossindividuals.Unlikeincome,whichisaflowvariable,wealthmeasurestheamountofvaluableeconomicgoodsthathavebeenaccumulatedatagivenpointintime.Therelativedifferencesinwealthbetweenpeoplearewhatweusuallyrefertoinordertodefinewhoiswealthyornot. 1:19 ExplainingWealth UnderstandingWealth Wealthcanbeexpressedinavarietyofways.Inapurelymaterialsense,wealthconsistsofalltherealresourcesunderone'scontrol.Financially,networthisthemostcommonexpressionofwealth. Definitionsandmeasuresofwealthhavebeendifferentovertimeamongsocieties.Inmodernsociety,moneyisthemostcommonmeansofmeasuringwealth.Measuringwealthintermsofmoneyisanexampleofmoney'sfunctionasaunitofaccount.Theextenttowhichoutsideforcescanmanipulatethevalueofmoneycanhaveadramaticimpactonmeasuringwealthinthisway,butitprovidesaconvenientcommondenominatorforcomparison. Otherwise,landandevenlivestockcanbeusedtomeasureandevaluatewealth.TheancientEgyptians,forinstance,oncemeasuredwealthbasedonwheat.Herdingcultureshaveoftenusedsheep,horses,orcattleasmeasuresofwealth. HowtoMeasureWealth Measuringwealthintermsofmoneyovercomestheproblemofevaluatingwealthintheformofdifferentkindsofgoods.Thesevaluescanthenbeaddedorsubtractedtogether.This,inturn,permitstheconvenientuseofnetworthasameasureofwealth.Networthisequaltoassetsminusliabilities.Forbusinesses,networthisalsoknownasshareholders'equityorbookvalue.Incommonsenseterms,networthexpresseswealthasalltherealresourcesunderone'scontrol,excludingthosethatultimatelybelongtosomeoneelse. Wealthisastockvariable,asopposedtoaflowvariablelikeincome.Wealthmeasurestheamountofvaluableeconomicgoodsthathavebeenaccumulatedatagivenpointintime;incomemeasurestheamountofmoney(orgoods)thatisobtainedoveragivenintervaloftime.Incomerepresentstheadditiontowealthovertime(orsubtraction,ifitisnegative). Apersonwhosenetincomeispositiveovertimewillbecomeincreasinglywealthyovertime.Forcountries,GrossDomesticProduct(GDP)canbethoughtofasameasureofincome(aflowvariable),thoughitisoftenerroneouslyreferredtoasameasureofwealth(astockvariable). Anyonewhohasaccumulatedalargequantityofnetworthcanbeconsideredwealthy,butmostpeoplethinkofthisterminmoreofarelativesense.Whethermeasuredintermsofmoneyandnetworth,orincommoditieslikewheatorsheep,totalwealthcanvarybetweenindividualsand groups.Therelativedifferencesinwealthbetweenpeoplearewhatweusuallyrefertoinordertodefinewhoiswealthyornot. Researchhasconsistentlyshownthatpeople'sperceptionoftheirownwellbeingandhappinessdependsmuchmoreontheirestimatesofwealthrelativetootherpeoplethanonabsolutewealth.Thisisalsopartofwhytheconceptofwealthisusuallyappliedonlytoscarceeconomicgoods;goodsthatareabundantandfreeforeveryoneprovidenobasisforrelativecomparisonsacrossindividuals.  TheUnitedStatesishometomostoftheworld'swealthiestpeople,including735billionaires. Arkansas-basedretailerWalmartisoneofthewealthiestcorporationsintheUS,withannualrevenuesexceedingtheGDPofmanycountries.For2021,itrecorded$559billioninrevenues,withapresencein24countriesworldwide.Rankednumber1ontheForbesFortune500list,Walmartoperatesmorethan10,500storesgloballyandservesmorethan220millioncustomersweekly. $237.9billion Thenetworthoftheworld'swealthiestperson,Tesla/SpaceXCEOElonMusk,asofJuly2022. Equallyasimpressive,wealthye-commercegiantAmazonboastedrevenuesof$386billionfor2021,earningitthenumber2positiononFortune'slist.Despiteexperiencingaleadershipchangeandashortageofworkers,thecompanycontinuedtoflourishin2021,postingprofitsover54%higherthanin2020.Itsmarketcapitalization–$1.66trillionasofMarch31,2022–hasalsopositioneditasoneofthewealthiestcompaniesintheworld. HowDoYouBuildWealth? Tobuildwealth,onemustallocateaportionoftheirincometosavingsandinvestmentsovertime. HowMuchWealthDoestheTop1%Own? Thetop1%ofwageearnershold31.9%oftheUS'swealthasof6/29/2022. WhatIsWealthManagement? Wealthmanagementarethefinancial,investment,andadvisoryservicesprovidedtoclientswithhigh-net-worth. WhatIsGenerationalWealth? Generationalwealtharetheassetspasseddowntosuccessive,familialgenerations. WhatistheGreatGatsbyCurve? TheGreatGatsbyCurveillustratestherelationshipbetween incomeinequality inacountryand thepotentialforitscitizenstoachieveupwardmobility.Graphsthatdepictthesetwovariablessuggestastrongpositivecorrelationbetweeninequalityandalackofupwardadvancementfromonegenerationtothenext.  WhatIsWealthInequality? Wealthinequalityistheunequaldistributionofwealthamongcitizens. BottomLine Theconceptofwealthissubjective,largelydependingonone'sperceptionandmeasureofvalue.Formost,moneyisthecommonunitofmeasurement,andthosewithanabundanceofitaredeemedwealthy. Therearemanystrategiesforamassingwealth;however,thereisnoprescriptionforall.Despitevariationsinhowitisexpressed,wealthoftenaffordsaccessandopportunitiesthatwouldordinarilybeinaccessiblewithoutit. ArticleSources Investopediarequireswriterstouseprimarysourcestosupporttheirwork.Theseincludewhitepapers,governmentdata,originalreporting,andinterviewswithindustryexperts.Wealsoreferenceoriginalresearchfromotherreputablepublisherswhereappropriate.Youcanlearnmoreaboutthestandardswefollowinproducingaccurate,unbiasedcontentinour editorialpolicy. Forbes."TheCountrieswiththeMostBillionaires." Walmart."WalmartReleases2021AnnualReportandProxyStatement." Forbes."Fortune500ListofCompanies-2022." Forbes."RealTimeBillionaires." Fortune."Amazon-2022Fortune500." FRED."ShareofTotalNetWorthHeldbytheTop1%(99thto100thWealthPercentiles)." CompareAccounts AdvertiserDisclosure × TheoffersthatappearinthistablearefrompartnershipsfromwhichInvestopediareceivescompensation.Thiscompensationmayimpacthowandwherelistingsappear.Investopediadoesnotincludealloffersavailableinthemarketplace. Provider Name Description RelatedTerms WhatIsGrossDomesticProduct(GDP)? Grossdomesticproductisthemonetaryvalueofallfinishedgoodsandservicesmadewithinacountryduringaspecificperiod. more LearnAboutWealthTax Wealthtaxisataxbasedonthemarketvalueofassetsthatareowned. more WhatIsEconomics? Economicsisa branchofsocialsciencefocusedontheproduction,distribution,andconsumptionofgoodsandservices. more WhatIsWelfareEconomics? Welfareeconomicsfocusesonfindingtheoptimalallocationofeconomicresources,goods,andincometobestimprovetheoverallgoodofsociety. more TragedyOfTheCommonsDefinition Thetragedyofthecommonsisaneconomicproblemofoverconsumption,underinvestment,andultimatelydepletionofacommonpoolresource. more WhatIstheAmericanDream? TheAmericanDreamisthebeliefthatanyonecanattaintheirownversionofsuccessinasocietywhereupwardmobilityispossibleforeveryone. more PartnerLinks RelatedArticles Economics FourEconomicConceptsConsumersNeedtoKnow Macroeconomics WhatAretheMostImportantAspectsofaCapitalistSystem? Economy WhyIsDeflationBadfortheEconomy? Economics WhatIsMoney? 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