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? 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. Placeholder 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,including422billionaires. Arkansas-basedretailerWalmartisoneofthewealthiestcorporationsintheUS,withannualrevenuesexceedingtheGDPofmanycountries.For2020,itrecorded$524billioninrevenuesandnoteda79%increaseinonlinesales.Rankednumber1ontheForbesFortune500list,Walmartoperatesmorethan11,500storesgloballyandservesmorethan265millioncustomersweekly. $177billion Thenetworthoftheworld'swealthiestperson,formerAmazonCEOJeffBezos. Equallyasimpressive,wealthye-commercegiantAmazonboastedrevenuesof$386billionfor2020,earningitthenumber2positiononFortune'slist.LikeWalmart,italsorealizedanincreaseinsalesduringthepandemic,recordinga38%growthinsalesfor2020.Itsmarketcapitalization–$1.72trillionasofDecember17,2021–hasalsopositioneditasoneofthewealthiestcompaniesintheworld. HowDoYouBuildWealth? Tobuildwealth,onemustallocateaportionoftheirincometosavingsandinvestmentsovertime. HowMuchWealthDoestheTop1%Own? Thetop1%ofwageearnershold32.1%oftheUS'swealthasof9/30/2021. WhatIsWealthManagement? Wealthmanagementarethefinancial,investment,andadvisoryservicesprovidedtoclientswithhigh-net-worth. WhatIsGenerationalWealth? Generationalwealtharetheassetspasseddowntosuccessive,familialgenerations. 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. TheRichest."CountriesWiththeWealthiestPeople."AccessedDecember17,2021. Fortune."Fortune500Walmart."AccessedDecember17,2021. Walmart."2020WalmartAnnualReport,"Page2.AccessedDecember17,2021. Walmart."2020WalmartAnnualReport,"Page7.AccessedDecember17,2021. Forbes."ForbesWorld'sBillionairesList."AccessedDecember17,2021. Fortune."Fortune500Amazon."AccessedDecember17,2021. YahooFinance."Amazon.com,Inc.(AMZN)."AccessedDecember17,2021. YahooFinance."Amazon.com,Inc.(AMZN)."AccessedDecember17,2021. GlobalFinance."World'sLargestCompanies2021."AccessedDecember17,2021. FRED."ShareofTotalNetWorthHeldbytheTop1%(99thto100thWealthPercentiles)."AccessedDecember17,2021. CompareAccounts AdvertiserDisclosure × TheoffersthatappearinthistablearefrompartnershipsfromwhichInvestopediareceivescompensation.Thiscompensationmayimpacthowandwherelistingsappear.Investopediadoesnotincludealloffersavailableinthemarketplace. Provider Name Description RelatedTerms LearnAboutWealthTax Wealthtaxisataxbasedonthemarketvalueofassetsthatareowned. more WhatIsGenerationalWealth? Generationalwealthreferstoassetspassedbyonegenerationofafamilytoanother,suchasstocks,bonds,realestate,andfamilybusinesses. more WhatIstheAmericanDream? TheAmericanDreamisthebeliefthatanyonecanattaintheirownversionofsuccessinasocietywhereupwardmobilityispossibleforeveryone. more GrossDomesticProduct(GDP)Definition Grossdomesticproduct(GDP)isthemonetaryvalueofallfinishedgoodsandservicesmadewithinacountryduringaspecificperiod. more TragedyOfTheCommonsDefinition Thetragedyofthecommonsisaneconomicproblemofoverconsumption,underinvestment,andultimatelydepletionofacommonpoolresource. more Capitalism Capitalismisaneconomicsystemwherebymonetarygoodsareownedbyindividualsorcompanies.Readontofindoutaboutvariousformsofcapitalism. more PartnerLinks RelatedArticles Economics WhoWasJohnLocke? Economics RacialWealthGapDefinition Government&Policy BabyBondsandIntergenerationalWealthInequality Economics WhoWasAdamSmith? Economics WhatIsMoney? Macroeconomics MeasuringInequality:ForgetGini,GoWithPalma