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As a measure of socioeconomic status, net worth differs from other interval- and ratio-level measures, such as earnings or education, in that its distribution is unbounded. The absence of upper and lower bounds explains why, empirically, net worth is more unequally distributed than income. Indeed, one of the limitations of the “pond” analogy evoked earlier is its inability to capture this unique attribute of wealth: wealth has no limits, and excess wealth is rarely lost. As it is augmented over the life course (a fact encapsulated in the dictum “wealth begets wealth”), including through income streams and intergenerational transfers, net worth can reach extreme values, which far exceed the income levels reported by top earners. According to a recent Forbes’ Annual World’s Billionaires Issue, that year’s 2,153 world billionaires controlled a staggering combined net worth of $8.7 trillion (Forbes 2019).

Unlike earnings, formal education, or occupational status, net worth has no lower bound. “Negative” wealth, where the amount of debt and liabilities exceeds the market value of the total assets, is a common economic reality for millions of households worldwide. This type of material hardship, whether temporary or sustained, defines the financial circumstances of the approximately 15% of American households (roughly one in seven) that have substantial home mortgage loans, student loans, auto loans, and credit card debt (De Giorgi et al. 2016). Since many households in the US and other affluent countries experience rising household debt, commentators have made an astute observation: if net worth rather than income is used as a measure of economic status, then the poorest of the world’s poor reside in the wealthiest and most economically developed countries, where access to risky loans is not only widespread but sometimes even encouraged by financial institutions. An example from the US illustrates the unbounded quality of net worth (see Table 2.1). While family mean net worth, by net worth category, ranges from $-12,000 to over $5,000,000, the distribution of mean income is more limited, extending from $34,200 to $459,900.

Table 2.1 Family income and net worth by net worth class (in thousands of 2016 dollars)

SOURCE: Bricker et al. 2017: compiled from Tables 1 (p. 4) and 2 (p. 13)

The three distinct properties of wealth—assets, composition, and net worth—are connected in ways that are critical to our understanding of wealth accumulation and inequality. First, wealth portfolios are closely correlated with household total net worth, since wealth accumulation over the life course typically starts with the ownership of liquid assets and a car, and eventually grows to include a main residence and financial and income-producing assets (Keister 2000).

Second, wealth inequality can be understood only as a product of these three properties of wealth and the cumulative nature of the relations among them. Differential access to particular assets, such as real estate or pension plans, generates inter-household disparities in the composition of wealth portfolios and influences the total net worth that households control. In the same way, fluctuations in the price of certain assets such as housing or stocks alter the share of these assets in total household net worth and can in principle contribute to a rise or a decline in the wealth gap between asset owners and the asset-poor. Finally, higher levels of net worth allow for more diverse portfolios, which may affect households’ net worth (Keister and Moller 2000; Spilerman 2000). Most financial advisors, for example, instruct investors to reduce their share of “risky” assets as they grow older.