What Is Net Wealth?

Personal wealth is equal to the sum of tangible assets, net foreign assets, cash, bank deposits, government or corporate bonds, corporate stocks, etc. owned by individuals.

Personal wealth

Right!

Personal wealth is equal to the sum of tangible assets, net foreign assets, cash, bank deposits, government or corporate bonds, corporate stocks, etc. owned by individuals.

Chinese name

Personal wealth

Form

Tangible assets, net foreign assets, cash, etc.

Related field

economic

Related concepts

Financial management

Savingsconsumption is lower than incomeis also the main way to accumulate personal wealth, although the choice of wealth growth is more important for individuals than for society: personal savings can take the form of owning multiple assets. Some of these assets are claims on others; in this case, one person saving means that the other person uses the savings, and neither the total private equity nor the national wealth has changed. Similarly, individuals can also purchase their claims on government or tangible assets from other individuals. This process will not change total private equity or national wealth. If the supply of government bonds increases, private equity may increase (depending on expectations Taxes); unless government investment also increases, national wealth will remain the same. If new tangible asset rights are purchased by individuals, it means that the country will have corresponding savings and national wealth and private net worth will increase as a result. ^[1]

Wealth governance is firstly an individual-based governance at the micro level. Micro-wealth governance is the premise and foundation of wealth governance in the entire society. An individual's use of a certain amount of wealth to meet his own needs and to obtain more wealth is the basis of the entire socio-economic activity. However, when using his wealth personally, he does not need to consider the wealth operation of the entire society. He only needs to determine the use of wealth in his hand, whether it is consumption, investment or donation, according to his own needs and preferences, as long as this use can He can satisfy himself. And the personal governance of this wealth must be based on a set of orderly social rules. These rules enable many scattered individuals in society to complete various uses of wealth in accordance with their own needs and preferences. The behaviors and purposes of different directions may not conflict, and various interests may be compatible with each other, thereby ensuring the harmony, stability and unity of social behavior. The main form of this rule in modern society is the market economy, and the individual's rational behavior in the market economy constitutes his behavior model for wealth governance. The market economy itself is also a form of social operation that gradually emerges from decentralized individuals in interactions and games. ^[2]

Comparison of personal wealth and personal wealth

Because the wealth held by individuals is generally liquid, flexible, and general, it can be changed quickly without any loss; the state cannot, because the main component of national wealth is for specific purposes. Of durable tangible assets, generally the national reserve with international purchasing power only accounts for a negligible share of national wealth, and it is simply impossible for durable tangible assets to change their uses quickly without any loss, such as Changing the form of holding of national wealth by reducing the capital share of the power sector and turning it into shipping equipment requires a long process. In contrast, private investors can quickly convert power company stocks into shipping company stocks. ^[3]

Therefore, the rate of personal consumption of wealth is faster than that of the country. Most personal wealth can be realised or mortgages of tangible assets that cannot be quickly realised can be secured by obtaining a bank loan to increase personal consumption. Obstacles. Generally speaking, the value of durable tangible assets in consumption can only be reflected in a specific way with the cooperation of labor and other means of production. Machines without managers and power (fuel) are worthless, so if you do nt Undermining its value, national wealth can only be done in a slow and indirect way. For example, if a person's personal wealth is $ 30,000, he can still spend $ 10,000 per year without working for the next 3 years. However, if a country's national wealth is 300 million US dollars, it does not mean that the country can consume these wealth at will in any year. There is no doubt that countries can at least temporarily pass current account deficits and capital account surpluses to obtain more consumption of goods and services, but even as financial assets flow more and more frequently in various countries, compared with domestic savings and investment, international capital The amount of liquidity is quite small, and a long-term current account deficit will make a country carry a heavy debt burden and make its economy more vulnerable, which will trigger financial crises and even economic crises, such as Brazil and Mexico in the 1990s. Compared with private individuals, countries (even rich ones) are far less successful than they can afford to produce, whether by selling assets to foreigners or borrowing. As the net value of private wealth, its main part will eventually be held in the form of tangible assets, but the above final components of private wealth are generally not directly owned by private individuals, but through a complex debt and credit network as the medium and financial Institutional operation to achieve. But as long as most wealth owners do not have their wealth in the form of tangible assets, personal wealth can have total consumability and form liquidity with almost no loss. The most typical example is a bank. A depositor can convert his certificate of deposit into cash only when most other depositors do not withdraw their deposits at the same time, otherwise the bank cannot fulfill its debt service obligations. However, there is little chance that all individuals in a country will demand to consume their wealth at the same time. Therefore, our financial institutions have created such an illusion that the high liquidity of private wealth can be guaranteed.

Comparison of national wealth and personal wealth accumulation ability

Just as the consumption power of national wealth and personal wealth, there is a large difference in the accumulation capacity of the two, although not as obvious as the former. Generally speaking, the growth of national wealth mainly depends on national savings. Of course, in some special cases, a country's national wealth may increase rapidly without corresponding savings. For example, a new mineral resource or land was unexpectedly discovered or acquired; people's preferences or technology changed, which significantly improved the usefulness of existing resources; due to favorable changes in exchange rates, international purchasing power gained improve. The first two cases may be useful for a country that is not yet geographically developed, but not so important for a country with a mature economy; the third case is possible for small countries that are highly dependent on international trade, and of little importance to most countries. Therefore, for most countries, saving is almost the only way to increase national wealth, that is, the state must increase the output of tangible assets beyond its consumption or scrap, and the tangible asset inventory will increase. To achieve this, the state must reduce its consumption to less than its output, so that it can use a portion of its labor and productive resources beyond its repaired and renewed capital goods. But we must accept the fact that accumulation through savings is by no means a one-time event, and the "catch-up strategy model" is worthy of deep reflection. Because in a long period of time, a low savings rate can still make a large increase in national wealth, but if you want to achieve a lot of increase in national wealth in a relatively short period of time, even a high savings rate is beyond reach.

In addition, although inflation has increased the monetary value of tangible assets, that is, the nominal value of national wealth, it has not changed its actual value, and its utility to meet people's future needs has not changed. By the same token, deflation has no effect on the real value of national wealth. Although there are multiple asset options for personal wealth growth, saving (consumption is lower than income) is also the main way to accumulate personal wealth. In addition to saving, individuals can increase their wealth by: capital donations from others; the price of owning debt assets rises more than the rise of debt assets and the cost of living, so as to obtain real capital gains. (But if the increase in creditor's rights is equal to the increase in debt and living expenses, the individual will only receive monetary capital gains, that is, only nominal wealth will increase, and actual wealth will not increase)

In the process of selecting multiple assets for individuals to save, one person's savings means that the other person uses savings, and total private wealth and national wealth have not changed. Similarly, individuals buying national debt or tangible assets from other individuals will not change the net worth of private wealth and national wealth. If the supply of government bonds increases, private net worth may increase (depending on the difference in expectations of future tax increases due to increased national debt), and national wealth will not increase unless government investment also increases. If new tangible asset rights are purchased by individuals, it means that the country has corresponding savings, and national wealth and private net worth will increase.

In general, the main relationship between national wealth and personal wealth is: the former's constitutional rigidity and the latter's constitutional elasticity; the specificity of the former's tangible asset part makes its consumability limited and the latter's wealth general and strong. The consumption of individuals in the form of multiple assets to increase personal wealth must respect the fact that the increase of personal wealth must be achieved through the accumulation of national wealth through the accumulation of tangible assets.