What Is Wealth? (Guide)

In ordinary language, “Wealth” conveys an idea of prosperity and abundance. A man of wealth is understood as a rich person. But in economics wealth is synonymous with economic goods. Adam Smith and the other classical economists considered wealth as the central issue of the study of economics. In short, Wealth means anything which has value.

Therefore, three attributes of wealth as in the case of value are utility, scarcity and marketability. Thus, any valuable good which is able to satisfy human want, which is scalable and can be transferred, is wealth. It should be noted that, Money is a form of wealth. All money, is wealth but all wealth, is not money.

Even though, income is different from wealth. Wealth yields income.
Wealth and welfare are closely inter-related. Wealth is the means and welfare and end.

The Four Types Of Wealth

Research shows that, families that have sustained wealth over more than three generations often have a different view and definition of wealth. These successful families see wealth from four different perspectives, of which money is only one. They are; Human Capital, Social Capital, Cultural Capital And Financial Capital.

Human Capital: This is a term popularized by Gary Becker, an economist and Nobel Laureate from the University of Chicago, and Jacob Mincer. It is also worth mentioning the contributions of Theodore Schultz to this theory. 

The human capital theory refers to the stock of knowledge, habits, social and personality attributes, including creativity, embodied in the ability to perform labor so as to produce economic value. The subject is closely associated with the study of human resources management as found in the practice of business administration and macroeconomics. 

The original idea of human capital can be traced back at least to Adam Smith in the 18th century. When most people think about asset classes, things like stocks, bonds, real estate and commodities come to mind. Investment advisors spend countless hours researching the risk/return profiles and correlations of these "common" asset classes, in an attempt to construct efficient investment portfolios for their clients.

However, if you are a young to middle-aged investor, the importance of these asset classes pales in comparison to an asset class called human capital. Human capital is intangible and cannot be directly purchased or sold. For this reason, it does not get much financial press. If you are between the ages of 18 and 50 (or you still act like you are), then you may be interested in what human capital can do for you in addition to how you can use it to grow and protect your financial capital.

When you are young, it is usually the most valuable asset that you own. Human capital is also your best protection against inflation. With a strong professional skill set, you will always command a fair wage, no matter how inflated your local currency becomes.

Anything you do to increase your ability to earn higher future wages could be considered investing in your human capital. The monetary and time-consuming investments that you make early in life, like obtaining a higher education, on-the-job training and learning better social skills can increase your personal human capital.

It is also important to note that, human capital tends to migrate, especially in global economies. That is why you will see a shift of this type of capital from developing places or rural areas to more developed and urban areas.


Can Human Capital Be Calculated?

Since human capital is based on investing in the skills and knowledge of humans through education, the investments in human capital can be easily calculated. For example, in companies that investor in human capital, (i.e., managers who oversee human capital thus the HR department) can calculate the total profits before and after any investments are made. 

Any return on investment (ROI) of human capital can be calculated by dividing the company’s total profits by its overall investments in human capital. For example, if Company X invests $2 million into its human capital and has a total profit of $15 million, managers can compare the ROI of its human capital year-over-year (YOY) in order to track how profit is improving and whether it has a relationship to the human capital investments.

Social Capital: Social capital consists of the economic resources obtained from the interactions between businesses and individuals or networks of individuals. Feeling connected, sharing your dreams, finding partners, engaging in your communities, finding solutions, overcoming challenges and making a difference are much more apt to happen with a strong network of quality relationships. The term generally refers to ---

(a) Resources, and the value of these resources, both tangible (public spaces, private property) and non-tangible assets, such as information, innovative ideas, and financial support.

(b) The relationships among these resources, and

(c) The impact that these relationships have on the resources involved in each relationship, and on larger groups. It is generally seen as a form of capital that produces public goods for a common good.

Social capital: This form of wealth is vital for businesses across many industries. For example, social capital is essential to the profitability of a company and is crucial for people looking for new employment. Most service professionals acquire new customers through their social networks, and approximately 85% of new jobs are filled through networking.

Companies such as Airbnb and Uber have harnessed social capital to grow their market shares and become major disruptive forces in their industries. Both companies rely on the power of social networks for not only marketing but also for quality control, as users contribute public reviews of provider quality.

Bonding and bridging are the most common forms of social capital. Bonding social capital arises from the connections formed by homogeneous groups, such as employees within a single company, women's groups, or enthusiasts of a specific hobby. Bridging social capital, by contrast, arises when members of diverse groups forge connections to share ideas and information, such as a local police force and a neighborhood association.

Social capital is an important constituent of the prosperity of an economy. Social networks in an organization include the trust among the employees, their satisfaction level with the job and also the quality of communications that take place with the peers, seniors and subordinates. 

Strong social networking, coupled with efficient performance, signifies a healthy state of affair.Social capital might have its share of pros and cons, but if it is utilized properly, it can pave the way for prosperity.

Cultural Capital: Did you know that you have cultural capital? We all do. We all have different skills, tastes in music, and life experiences, to name a few. So why is cultural capital important? Our cultural capital gives us power. It helps us achieve goals, become successful, and rise up the social ladder without necessarily having wealth or financial capital.

Cultural capital is having assets that give us social mobility. These assets are both tangible and intangible, as with skills and music taste; but importantly, they are not related to income, net worth, or any financial measure. 


Cultural Capital Falls Into Three Categories: 

institutionalized (education or specialized knowledge), embodied (personality, speech, skills), and objectified (clothes or other belongings). Given these varied elements, cultural capital is difficult to measure objectively.

The concept of cultural capital originated in the work of Pierre Bourdieu , who defined it as high cultural knowledge that ultimately redounds to the owner's financial and social advantage. An example would be knowing how to "dress for success." This cultural knowledge can pay off. 

Thus, although people naturally seek competent personnel, they also prefer ones who dress, talk, and comport themselves in accordance with their elite status. The acquisition of high cultural knowledge and style, including stylish dress, table manners, golf, knowledge of wine, the right neighborhood, and arty chit-chat, represents a capital resource of the owner, vested in the owner. 

Human capital and cultural capital go together because people who have one usually have the other as well, but the two capitals are in principle distinct. Anyone may have human capital without cultural capital, or cultural capital without human capital. In principle, adults might acquire cultural capital by hiring a tutor.

Now,embodied cultural capital comprises the knowledge that is consciously acquired and then passively inherited, by socialization to culture and tradition. Unlike property, cultural capital is not transmissible, but is acquired over time, as it is impressed upon the person's habitus (character and way of thinking), which, in turn, becomes more receptive to similar cultural influences. 

Linguistic cultural capital for example, is the mastery of language and its relations; the embodied cultural capital, is therefore, a person's means of communication and self-presentation, acquired from the national culture. Yet, whilst possessing a work of art (objectified cultural-capital), the person can consume the art (understand its cultural meaning), only with the proper conceptual and historical foundations of prior cultural-capital.

As such, cultural capital is not transmitted in the sale of the work of art, except by coincidental and independent causation, when the seller explains the artwork's significance to the buyer. Objectified cultural capital comprises the person's property (e.g. a work of art, scientific instruments, etc.) that can be transmitted for economic profit (buying-and-selling) and for symbolically conveying the possession of cultural capital facilitated by owning such things.

Institutionalized cultural capital on the other hand, comprises an institution's formal recognition of a person's cultural capital, usually academic credentials or professional qualifications. 

The greatest social role of institutionalized cultural-capital is in the labor market (a job), where it allows the expression of the person's array of cultural capital as qualitative and quantitative measurements (which are compared against the measures of cultural capital of other people). The institutional recognition facilitates the conversion of cultural capital into economic capital, by serving as a heuristic (practical solution) with which the seller can describe his or her cultural capital to the buyer.

Cultural capital, unlike financial capital, is measured by how much value society places on non-financial assets, and we can use those assets to move up the social ladder. You don't have to be "rich" to have cultural capital, since income or net worth is not always linked to cultural capital.


Financial Capital: The most typical, but also the most narrow, definition of wealth is financial capital. Financial capital, is measured in numbers, be it in terms of net worth or some other monetary metric. For example, Bill Gates, the Founder of Microsoft, was worth $79.7 billion dollars in May of 2015, topping a list of the world's billionaires. This calculation is based not only on his wealth, but on the monetary value of his other possessions: stocks, retirement accounts, houses, and art.

In addition to financial capital, however, Bill Gates also has cultural capital. He has used his wealth, knowledge, and skills such that in 2014, he ranked seventh in a list of the most powerful people in the world. Money is important. Not the most important thing in life but very important. 

It absolutely makes life easier and better. Money allows you to live in a nicer community, take beautiful vacations and provide well for those you love. Financial capital is a much broader term than economic capital. In a sense, anything can be a form of financial capital as long as it has a money value and is used in the pursuit of future revenue. 

Most investors encounter financial capital with respect to debt and equity. Direct investment in a business is referred to as equity. When someone contributes $100,000 to a business in the hopes of receiving a portion of future profits, he increases its equity capital by $100,000. Equity capital is not typically accompanied by a guarantee of future returns.

Sometimes a business decides to finance its activities through debt instead of equity. Debt capital does not dilute ownership and does not entitle the creditor to a proportional share of future profits. However, debt represents a legal claim on the assets of the borrowing company and is considered riskier that equity capital.

Money raised from debt and equity issues is normally referred to as capital.Therefore, economic capital is the estimated amount of money needed to cover possible losses from unexpected risk. In economics jargon, capital can also refer to the machines, factories and other tools used to create final, or consumer, goods. Capital goods are not directly sold for money, so they usually require elements of investment and risk to accumulate and use.


Characteristics Of Wealth

Anything to be considered wealth should possess the following characteristics:
  • It must possess utility: That's ---
  • It must have the power to satisfy a want.
  • It must be desirable.
  • It must be limited in supply.

Though, air and sunshine are all essential for life and man cannot live without them, thus they possess great utility, they are not considered wealth because they are available in large quantities. Their supply is not limited. In other words, there is no scarcity of those goods. Such goods are known as free goods.

It should be transferable: It must be possible for you to transfer the ownership of such economic goods, which form wealth, from one person to another. For example, take a land, Land is wealth. For it has money value. If you purchase it, you can transfer the ownership rights of the land in your name.

It must have money value: It may be external. For example, the goodwill of a business is external wealth. Certain firms enjoy a lot of goodwill of the customers. The copyright of a book is another example of the point that wealth is external.

Utility, scarcity and transferability are the important characteristics of wealth. Any an economic good which possesses utility and is scarce in relation to demand as well as has the capability of it being transferred from one person to another, has money value and so it is considered as wealth.

#buttons=(Accept !) #days=(20)

Our website uses cookies from Google to enhance your experience. Our Privacy Policy
Accept !