Understanding Wealth: How Is It Defined and Measured?

What Is Wealth?

Wealth is the total value of all assets owned by a person, community, company, or country.

It's measured by taking the market value of all physical and intangible assets owned, then subtracting all debts. It can be seen in either absolute or relative terms.

Building wealth refers to the accumulation of scarce resources. People, organizations, and nations are said to be wealthy when they have accumulated many valuable resources or goods. Wealth can be contrasted with income in that wealth is a stock and income is a flow.

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.

How to Measure 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 commonsense 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. 

Arkansas-based retailer Walmart is one of the wealthiest corporations in the U.S., with annual revenue exceeding the GDP of many countries. For 2023, it recorded $611.3 billion in revenue, ranking number one on the Forture 500 list.

Equally as impressive, wealthy ecommerce giant Amazon boasted revenue of $575 billion for 2023, earning it the number two position on Fortune’s list.

The Bottom Line

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 prescription for all. Despite variations in how it is expressed, wealth often affords access and opportunities that would ordinarily be inaccessible without it.