Difference between wealth and income

Sal: Before talking more about
inequality I think it's worth

talking about the difference
between wealth and income.

Wealth and income, because I think they

often get confused in conversations about

wealth and income, and
also about inequality.

As you can imagine these
two things move together.

You tend to associate
someone who has more wealth,

has a higher income, or
someone who has a higher

income is more likely to have more wealth.

But these are not the same things.

Wealth is, you could view it as

the capital or the assets that you own.

This is the value of capital
and assets that you own.

Capital and assets that are owned.

While this is how much is made
in a certain period of time.

So amount made in a certain period.

They tend to move together but not always.

Let's take an example where
they don't move together.

Let's say that there's a retiree.

A retiree might have a
lot of wealth because

they've had a whole
lifetime of income to save.

Let's say that your
grandparents, or let's just say

your grandfather has a
wealth, the total assets,

his total assets, let's say
he has a million dollars,

a million dollars in total assets.

But he's not working
anymore, he's retired,

so his total income is the return that

he gets on that one million dollars.

Let's say that he has invested
it in reasonably safe things

and some bonds and whatever
else, so he's getting a,

let's say he's getting a three percent

return after taxes on his wealth,

so his income is going to
be 30,000 dollars per year.

Let's say you, let's say
this is you over here,

let's say maybe you're
just out of college,

maybe you actually have more
debt than you have assets so

maybe your wealth could
even be, your wealth if you,

say you have a 20,000 dollar
car but you owe 40,000 dollars

for your college loans, you
might have negative wealth.

You might have a wealth of
negative 20,000 dollars but

that education was to good
use, you were able to get

a really good job and you are now making,

let's say you're making
80,000 dollars a year.

This is a situation
where the younger person,

they actually have more
liabilities than they have assets,

could even have negative wealth,

but has a reasonably high income.

While someone who is
older and retired could

have a lot of wealth but a lower income.

Now as you can imagine, this is kind of,

I've drawn two extremes here
between a younger person

making a good amount of money
but they have some debt,

and an older person who's
just living on the returns

from their cumulated
wealth over their lifetime.

Now as you can imagine these two things do

start to correlate,
especially, for example,

let's say wealth got really big.

Let's say instead of your
grandfather saving one

million over his lifetime,
let's say it was 10 million,

Let's say it's 10 million.

and he's investing it
in the exact same way.

Now that three percent of 10 million,

he has 300,000 dollars
per year to live off of.

Obviously as wealth grows
the income from wealth,

the income from that capital will grow,

and at some point that
income could be larger

than what you might be able
to make purely from labor.

The whole point of this video is

to at least highlight the difference.

Sometimes when people talk
about inequality or disparities

they'll talk about accumulating
wealth in a segment of the

population, while other
times they'll talk about the

national income, it going
more and more towards the top

one percent, or top ten percent,
or top quartile or whatever.

They often move together but it's

important to realize the difference.