What is wealth? A tutorial

Paddy Hirsch Mar 6, 2014
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What is wealth? A tutorial

Paddy Hirsch Mar 6, 2014

A lot of people think that wealth is money.

But that’s only half the story. In fact, in most cases, it’s only a tiny fraction of the story.

You see, wealth is about more than money: It’s about assets. Assets being the stuff that you own: your car, your house, your collection of Rembrandt paintings, your Cartier watch. Cash money is an asset too – so include your bank account on the asset side of the equation.

But even if you’ve got lots of assets, that doesn’t necessarily mean you’re wealthy. Here’s the equation:

Your wealth = The stuff you own (your assets) – the stuff that you owe (your debt)

A lot of the time, people who look wealthy because they drive around in limousines and throw lavish parties aren’t wealthy at all. Why? Because they owe lots of money. Sometimes more than the value of everything they own.

The classic story illustrating this is Donald Trump, who always looks as though he’s one of the richest men in the world. Even when he isn’t. His daughter, Ivanka,

How could this be? Because the homeless man may not have owned a home or a car, but he probably owned everything that he wore and carried, and he probably had zero debt. The Donald, on the other hand, owned plenty of things, including a hefty chunk of Trump Tower. But he was also many billions of dollars in debt at the time.

The same goes for a great many Americans. Remember Stanley Johnson, with his great family, great house, new car, and golf club membership? Boy, he kept up a good appearance, but he was in debt up to his eyeballs. Compare with the man who’s alleged to be Satoshi Nakamoto, the inventor of Bitcoin. He’s supposed to own hundreds of millions of dollars’ worth of bitcoin, yet he lives in a modest suburban home in Southern California and drives a Toyota Corolla.

In short, wealth isn’t always what, or where, it seems to be.

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