Wealth

Wealth is a measure of value that can be used to assess different aspects of ones position. Wealth can be measured in terms of monetary well-being, quality of life and other factors. Generally wealth is described as being some measure of the value held by a person, company, community, or country.[1] With regards to economics, wealth is an accumulation of resources or things that have value.

There are numerous ways to express wealth, the most common is net worth. The net worth of an individual or entity can be used to determine their wealth, whereas countries express wealth in terms of national accounts. Wealth can also be described as being components of society or of an individuals life that leads to an increase in quality of life without being monetary. Examples of this type of wealth would be employment, access to education, electricity access, security, happiness, and health.[2] The measure of the quality of life of a country is represented by the Human Development Index value assigned to a country. The HDI uses indicators such as life expectancy, income, fertility rate, inflation rate and level/quality of education. Higher life expectancies, income, quality of education and lower fertility rate and inflation get a higher HDI number.

A country that has lower incomes may be considered "wealthier" than other countries with higher incomes if the other indicators of the HDI are higher in that country. If a country has a high level of public services its citizens do not have to directly pay for healthcare and education (they pay indirectly through taxes) which reduces the amount of wealth a person need to hold in terms of monetary assets.

Wealth is more than just having money in your pocket, it is about having things that hold value such as a house, these are called stores of value.

Net worth is the term most often used to describe the material or asset wealth of an individual or firm. The net worth of an individual or entity is the value of assets minus any debts. An asset being anything that one owns and has value. A debt or liability is any money that is owed such as a bank loan.[3]

For example:

Asset/Liability Amount( $)
House/Morgage
(Paid)
+750k
House/Morgage
(Unpaid)
-321k
Car (paid) +32.5k
Financial Assets +57k
Misc. Liabilities -17k
Net Worth 501.5k

For a net worth estimate to be correct, assets have to be valued accurately. Because financial assets such as stocks and bonds are subject to market forces it can be difficult to assess their value because they can change quickly. Even houses are prone to market forces, although changes in the housing market are generally much slower.

References

  1. "A Dictionary of Economics" published Oxford University Press, 2013. Edited by John Black, Nigar Hashimzade, and Gareth Myles Online version accessed [August 17th, 2017].
  2. Business Dictionary. Non-Monetary Wealth [Online]. Available: http://www.businessdictionary.com/definition/wealth.html#ixzz3ZwgS9Cml [May 15, 2016]
  3. J.Black, N. Hashimzade, and G. Myles. (2009) "Net Worth." [Online], Available: http://www.oxfordreference.com/view/10.1093/acref/9780199237043.001.0001/acref-9780199237043-e-2110?rskey=U3V1Ob&result=1 , 2009 [June 28, 2016]

Authors and Editors

Lyndon G., Jordan Hanania, Kailyn Stenhouse, Jason Donev
Last updated: August 29, 2017
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