Wealth and income are economic terms that are used interchangeably but are very distinct. Income refers to the total amount of earning that an individual or a household receives in a particular period of time as wages or payment for certain services offered. It is calculated based on a pre-determined rate agreed upon between the employer and the employee. However, wealth refers to the total value of assets owned by an individual or household accrued over time. Wealth ranges from possessions such as property to cash and other assets such as stock shares or bonds. However, despite these differences, there is a close correlation between the two because it is through income that people acquire wealth. Thus, individuals with high income are in a better position of acquiring greater wealth than those with lower income. In recognition of this fact, this paper focuses on critically discussing the key differences between the two concepts and explains the reason for the confusion. Also, assess the different ways that they both impact different races in the American context.
Differences between Wealth and Income
Wealth and income as aforementioned albeit being used interchangeably are very different. The variations of meaning are mainly in the context of the mode of acquisition, value, and use. On the one hand, income refers to any form of income that an individual accumulates after taxation and expenses deductions from an economic activity (Buch-Hansen & Koch, 2019). The activity may range from employment, services offered, sale of commodities, and return on investments. From an economic point of view, it is a form of monetary gain realized from an economic engagement. On the other hand, wealth refers to accumulated value over time by individuals for purposes of future use. Wealth is created through various activities such as asset acquisition, investments, or savings of earnings (Buch-Hansen & Koch, 2019). Based on the above definitions, a key difference between wealth and income is that while the latter is earned the former is created. The distinction helps to distinguish the two based on their mode acquisition. To explain, to acquire income, one has to generate value through undertaking certain economic activities while to acquire wealth one has to possess an asset that adds value to his total possessions.
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Also, another key difference between wealth and income is the period that it takes to generate or acquire them. For wealth, it is created over one’s lifetime through the process of acquisition of assets from one’s income (Buch-Hansen & Koch, 2019). However, income is earned over a particular period of time immediately it lapses. For example, an employee will earn a wage every month for the service provided to their employer. However, wealth creation takes time through the acquiring of items of value. Income and wealth are also different in that the former refers to the flow of money that accrues from different factors of production such as labor and product sales. On the other hand, wealth is the market value of all the possessions of an individual. In sum, wealth and income are completely different economic resources as the above discussions show.
Income Inequality and Wealth Inequality
The concepts of wealth inequality and income inequality are very similar but in application have some very key differences. Income inequality refers to the uneven distribution of total income among the existing population. The disparities of distribution mostly depend on various factors such as race, gender, social class, expertise, and geographical location (Golash-Boza, 2018). In retrospect, income inequality is driven by various factors including tax policies, unequal access to employment opportunities, poor employment policies, change in global trends, level of expertise, and differences in payment scales.
Income inequalities are forms of population segmentation of various different groups of individuals present in a given society resulting in variances in the total amounts of earnings distributed during a particular period. Wealth inequality is the uneven distribution of wealth between people from different groups of individuals. In essence, according to Golash-Boza (2018), the distribution of the total assets available in a country is not shared equally among the population segment resulting in a concentration of wealth among a group of people sharing common traits such as race or gender. Wealth inequality leads to the wealth gap- a huge difference in the total wealth possessed by different groups. In the US for example, the white majority race owns a substantial portion of the country’s total wealth while other minority groups continue to languish in poverty (Golash-Boza, 2018). In the same breath, the rich elite composed of capital owners also unequally own the available wealth resources in the country compared to the middle income and low-income households.
Wealth inequality and income inequality are related because the latter causes the former. The process of acquiring wealth relies on the total available income at one’s disposal. Thus, a high-income inequality leads to wealth inequality. Multiple research studies investigating wealth and income impact among different races observe that the disparities affect different racial groups differently depending on various factors. Wealth inequality and income inequality affect the minority groups the worst. In particular, they experience low standard of living, poor health, and poor housing. Income is very essential in helping households finance their standard of living and meet the cost of their needs including health care, housing, and diet. Thus, inequality impedes their ability to acquire these basic needs in a manner that affords a decent standard of living.
References
Buch-Hansen, H., & Koch, M. (2019). Degrowth through income and wealth caps? Ecological Economics , 160 , 264-271. https://doi.org/10.1016/j.ecolecon.2019.03.001
Golash-Boza, T. M. (2018). Race and Racisms: A critical approach . Oxford University Press, USA.
Kuhn, M., Schularick, M., & Steins, U. I. (2018). Income and wealth inequality in America, 1949-2016. https://doi.org/10.21034/iwp.9
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