What it means to be rich: The difference between income and wealth

Author: J.D. Roth / Source: Get Rich Slowly

I’m generally a pretty laid-back guy but, like anyone, I do have pet peeves. Because I write about money, I have lots of trivial personal-finance pet peeves. (It’s “saving rate“, not “savings rate”. Dave Ramsey did not invent the debt snowball, and his version is but one kind of debt snowball.

It’s not the only debt snowball. See? I told you these pet peeves were trivial!)

It’s silly that I’m bugged by this stuff, but I am. I’m sure you have pet peeves too, especially when it comes to your work.

One of my top pet peeves in the world of personal finance is when people who should know better conflate income and wealth. A high income can lead to great wealth — although it doesn’t always — but they’re not the same thing.

I see this error frequently — even in high-profile articles at major media outlets.

This morning, for example, I read an article at Vox about income inequality in Europe and the United States. The piece opens like this:

Income inequality is a growing problem in the United States. The richest Americans have reaped a disproportional amount of economic growth while worker wages have failed to keep pace.

The author elaborates: “From 1980 to 2016, the poorest half of the US population has seen its share of income steadily decline, and the top 1 percent have grabbed more.”

What bugs me here are the logical leaps from “low income” to “poor” and from “high income” to “rich”. But I can’t blame the author of this article; the source material makes the same mistake.

The Difference Between Income and Wealth

Now, I’m not here to explore income equality — that’s a subject for another day — but I want to talk about the difference between income and wealth…and why they’re not the same thing.

First, let’s define our terms.

• Income is earning money. Yes, it’s the primary piece of wealth creation, but income itself is not wealth.
• Wealth is having money. If you have a lot of money, you are rich. If you don’t have much money, you’re poor.

Income and wealth are related, but it’s a complicated relationship.

In 2016, the Don’t Quit Your Day Job blog took data from the Federal Reserve’s 2013 Survey of Consumer Finances to examine this very subject. They created this chart to graph the data:

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