Question

Explain the difference between wealth and income. Which is more widely distributed in the United States?

Answer 1

There are some fundamental differences between wealth and income.

Firstly, Wealth is a stock concept. It represents the 'stock' of assets held by an individual, in the form of property, savings, bonds, gold etc at a given point of time. 'Ownership is a keyword in understanding wealth. So for example, the $27 million house owned by Ellen Degeneres is part of her wealth.

On the other hand, Income is a flow concept. It is the remuneration recieved by a factor of production over a preiod of time. It is what you recieve in return for work or by virture of ownership. It can be in the form of wages, salaries, interest on savings, dividends, rental income etc. In this case, the reported $20 million, Ellen recieved for her Netflix comedy special is her income.

Secondly, Wealth is often acquired by the accident of birth ( i.e.inheritance), while income never is. A high income requires investment in formal education and training. Continuing with the same example, Ellen's pets could one day inherit her entire stock of assets, making them richer than most Americans, but they're unlikely to have a steady salary.

Understanding the difference between Wealth and Income is essential to understanding poverty. Incomes form a very small part of an individual's wealth. The reality of the rich versus the poor is dependent on wealth rather than income, because these assets work for you even when you're not working.

Wealth is more widely distributed than income in the United States. A study by Pew Research centre shows that lower income families held only 4% of the aggregate wealth in 2016, while the upper-income families held a whopping 79%. The lower income families held 9% of the U.S aggregate income, while the upper-income families held 48% in 2018. Even though the income gap has also been rising, the upward trajectory of the wealth gap has been more problematic.