We learn wealth gradually. For me it began when my grandmother took me to buy my first candied hawthorn skewer. That was when the idea of "money" appeared. Then came pocket money, university, part-time work or perhaps a first business, and rising income. The attachment to money, sometimes the resentment toward it, grew stronger. After starting work, we learn what everyone else learns: funds, stocks, bonds. Marriage, a home, children and a mortgage arrive on schedule.
By middle age, time has passed and insurance and pensions walk onto the stage... For many people, that is where their understanding of wealth stops. I want to look at it from another angle.
In one sentence: measure wealth as a share, not in fiat currency.
Define 100 percent as the total wealth of the world. Your x percent is the amount of that wealth you own. Most people increase their share from childhood until they reach a point of convergence. After that point, they may keep working and their nominal balance may keep rising, while their share has already flattened or even begun to fall. A small group can keep increasing its share. Those are the real wealth elites.
What do we gain by measuring wealth this way?
It breaks the illusion created by nominal currency figures, especially the apparent "growth" caused by inflation.
It shows your social position and the direction of your wealth more clearly. That tells you what is actually happening to you economically.
It can also tell you whether you have become economically "old," meaning your share has flattened or started to shrink.
How do we calculate it?
Wealth share = total personal assets / total GDP × scaling factor (one million)
The GDP can refer to whichever area you want to measure: a country or the whole world.
The scaling factor only makes the result easier to read.
The measurement interval should usually be longer than a quarter. Annual measurement makes more sense.
Once you move beyond the illusion of fiat currency and enter the world of shares, your entire view can change. A quick interruption with my own theory of wealth, which I will expand another time: wealth ability has three parts. The ability to acquire wealth, the ability to keep it, and the freedom to use it. A few further thoughts:
Measured as shares, wealth is a zero-sum contest. If A's share rises, B's share must fall.
That point explains much of the economic struggle in the world. Making the cake larger does not change the contest over shares. If C's share rises, it must come from A or E. The conflict cannot be reconciled. That is the most important internal logic.
Holding cash or another non-yielding financial asset is a natural way to become poorer. More money keeps being printed. If your cash does not grow as fast as the money supply, your real wealth is continuously diluted. You can treat the rate of money creation as a rough version of inflation.
Anyone who can keep increasing their wealth share is seriously impressive. Keeping the increase going for as long as possible is already an achievement. Reaching a certain share and merely holding it puts someone far beyond the ordinary.
Managing wealth by share goes beyond absolute values. But when considering the growth rate, cz may be right: it should probably be treated exponentially rather than linearly.