Categories: Money AdviceNews

Wealth Explained

Published by
Lethabo Ntsoane

Wealth is a topic that has been debated for centuries, and Forbes and Bloomberg have devoted some of their resources to tracking the world’s wealthiest individuals. But, what exactly is wealth? Many scholars and some of the most brilliant minds, such as Adam Smith, have delved deeply into the concept of wealth.

This article will help you understand the definition of wealth, as well as its characteristics, components, and other aspects. Before we go any further, let’s define wealth.

What is Wealth?

Wealth is a measure of value that is calculated by adding up the properties and assets owned by a person, community, province, country, or organization. All assets, both tangible and intangible, are totaled and subtracted from all debts owed.

We can deduce that wealth = total assets – total debt, with the resulting equation leading to the term net worth. Those who are wealthy have the ability to accumulate more assets than liabilities. Wealth, as opposed to income, is a stock variable, whereas income is a flow variable.

Characteristics of Wealth

  • It entails the accumulation of valuable scarce resources that can be quantified in terms of monetary value.
  • The most common method of measuring wealth is net worth, which is calculated by adding a person’s total assets and then subtracting them from the person’s total debt.
  • Wealth is a stock variable because it represents the amount of valuable economic goods accumulated at a given point in time.
  • Wealth can be measured for individuals, countries, communities, and businesses.
  • Wealth includes both tangible and intangible assets.

What are the components of Wealth?

Wealth is made up of both tangible and intangible assets, which we explain in detail below.

Tangible Assets

Tangible assets are possessions that have monetary value and usually take the form of a physical object. When calculating someone’s wealth, we consider their tangible assets. It is critical to understand that tangible assets can be current or non-current, which means they can be liquidated immediately or over time.

Because tangible assets are non-current and current assets owned by an entity, country, or individual, tangible assets can include, but are not limited to:

  • Vehicles,
  • Furniture,
  • Inventory,
  • Securities such as stocks and bonds,
  • Cash,
  • Artwork,
  • Jewellery,
  • Property,
  • Gold and other minerals, and
  • other recognizable durable goods.

Intangible Assets

Intangible assets are financial instruments that have perceived value; thus, they are not physical in nature. Goodwill is an example of an intangible asset because it cannot be measured but can be valued, and a company can use its goodwill to obtain credit from creditors or to gain customers.

Intangible assets can be divided into two types: indefinite and definite. As a result, intangible assets can be thought of as having either a continuous or a limited value.

Examples of intangible assets include:

  • Copyrights,
  • Trademarks,
  • Patents,
  • Goodwill,
  • Franchises,
  • Licensing, and more

Types of Wealth

Individuals in the world have different classes of wealth. Wealth has been classified into three categories by financial advisors and wealth managers. There are three types of wealth categories: mass affluent, high net worth, and ultra-high net worth. The three categories are discussed in more detail below.

Ultra-High Net Worth Individuals

Ultra-high Net Worth Individuals are people who have at least $30 million (R450 million) in investable assets. These are the wealthiest of the wealthy and control a large amount of a country’s resources and wealth. They typically make up 1% to 5% of a country’s population but control the vast majority of wealth; in third-world countries, some of them own more than 50% of the wealth. 

High Net Worth Individuals

These individuals fall somewhere between ultra-high net worth and mass affluent net worth, with investable assets ranging from $750,000.00 to $1.5 million, or R11.3 million to R22.5 million. 

Mass Affluent

Individuals with net assets ranging from $250,000.00 to $499,999.00, or between R3.7 million and R7. 5 million, are classified as mass affluent. In developed countries, these are primarily middle-class households; however, in countries such as South Africa, they are regarded as high-net-worth individuals.

It is worth it to amass wealth?

We know what wealth is made up of now that we’ve defined it, and it’s made up of scarce resources. However, there is no yardstick for determining how each individual perceives wealth. There are people who believe they are wealthy, but it is widely assumed that they are poor and not wealthy.

When it comes to wealth and how to acquire it, it all boils down to asking yourself what wealth is. Once you’ve defined it for yourself, you can start accumulating it. You can start your own business or advance to a high position in an existing business. 

This method can help you increase your net worth. Managing your wealth will become necessary at some point, and this is something to consider early on in the process of accumulating wealth. Another consideration is how to transfer the wealth accumulated during your lifetime, and setting up wealth transfer vehicles will be required if you want to transfer it.

Conclusion

Wealth is a subject that many people avoid, but it is critical to learn about it in order to achieve financial freedom not only for oneself but also for future generations. Wealth allows you to focus on the deeper meaning of life rather than spending more time worrying about meeting your basic needs.

Lethabo Ntsoane

Lethabo Ntsoane holds a Bachelors Degree in Accounting from the University of South Africa. He is a Financial Product commentator at Rateweb. He is an expect financial product analyst with years of experience in reviewing products and offering commentary. Lethabo majors in financial news, reviews and financial tips. He can be contacted at lethabo@rateweb.co.za

Published by
Lethabo Ntsoane