Wealth is defined as the sum of the value of all assets a person owns, including money in bank accounts, financial investments, pension funds, and home value. To gauge a person's wealth, one must calculate the total value of these items. Equity in home ownership notably contributes significantly to American households' wealth.
The total worth of a person's assets, also referred to as wealth, is the sum of the value of all assets. This includes not only money in bank accounts but also encompasses financial investments, any pension funds, and the value of tangible assets such as a home.
To calculate a person's total wealth, one would add up the value of these various components. For example, if a person has money saved in bank accounts, stocks or bonds, a retirement pension plan, and owns a home, each of these assets contributes to their overall wealth. It's important to note that wealth can also be inherited, which adds to the value of a person's assets.
Another term closely related to wealth is a financial asset. Financial assets can be anything from stocks and bonds to the equity a person has in their home. In the context of the United States, Federal Reserve data reported that the total value of all home equity held by U.S. households was $11.3 trillion at the end of 2015, illustrating the significant role home ownership plays in personal wealth.
To better understand the concept of wealth, let's consider some examples:
- If a person inherits a house valued at $300,000 and also has $200,000 in a pension fund, their total wealth from these two assets is $500,000.
- A business owner with a company valued at $1 million, investments worth $250,000, and a bank account balance of $50,000 has a total asset worth of $1.3 million.