brettgriffin
Swizec
> The following breakdowns are largely just people's net worth (assets minus liabilities) with the credit they can tap because of their assets.
> Not sure I entirely understand the point. Yeah, people with assets are generally more credit-worthy and can tap lines of credit.
Liquidity is a useful concept to think about when evaluating your risk levels. Having 500k in stocks is different than 500k in your primary residence. Same net worth but if you need to tap into 500k of stock, you can do that tomorrow. Liquidating your primary residence takes a few weeks (or months) and you’re then homeless.
I think that’s what this article is getting at. Net worth + resilience to risk. You can take bigger bets (with higher rewards) when your risk is losing some paper money vs your car or house.
chollida1
> Liquidity is a useful concept to think about when evaluating your risk levels. Having 500k in stocks is different than 500k in your primary residence. Same net worth but if you need to tap into 500k of stock, you can do that tomorrow. Liquidating your primary residence takes a few weeks (or months) and you’re then homeless.
This is well said and the main reason why when calculating if someone is an accredited investor they always exclude the value/equity of a person's primary residence.
Someone who is renting but has a large pile of cash is in a better position to repay than someone who has their equity in their home as selling equites vs selling their primary home have far different stresses on the person, all other things being equal.
hammock
Liquidity can be broken down further into volume profile and net proceeds.
1) There is a good likelihood that a house and a stock portfolio can both be sold tomorrow, no problem. But you may have to offload the house at “fire sale” prices , vastly lower than the price it would bear if you had it on offer for 30+ days.
2) T-bills and stocks can both be sold tomorrow, but if your stocks have cap gains then the net proceeds after tax are going to be much lower from the sale of stocks than the t-bills.
These are some of the ways “paper gains” and “market price” fundamentally lie to you (irrespective of bubbles etc), that are seldom broken down in too much depth in personal financial discussions.
——
Another dimension that is missing is financial freedom. The author says:
> These wealth levels have existed throughout human history, even though the unit of currency changes.
↑-1 Wealth: Destitute (less than $3) At the bottom-most level, a person can’t even scrape together a few bucks for some food. Societal services aren’t accessible unless they are completely free. Finding a toilet and shower may be difficult. They have no possessions; their shoes and coat are probably decrepit and dirty.
Hard disagree here. An indentured servant in the 17th century, with a negative net worth, might have a very decent standard of living. Nice shoes, coat, bountiful table, etc. But they are not free to leave the land and move somewhere else. They are not free to pick up a different occupation.
trollbridge
Rather obviously someone can simply take a heloc against their home, and the payment from that will still be less than comparable rent.
The same is true of stocks - loans can be taken against them, and in the form of certain options leverage can hit 100%.
rufus_foreman
>> Having 500k in stocks is different than 500k in your primary residence. Same net worth but if you need to tap into 500k of stock, you can do that tomorrow. Liquidating your primary residence takes a few weeks (or months) and you’re then homeless.
I have a HELOC. I've never used it. Hopefully I won't need to, but it was free to apply for and a good thing to have in case you do need it. I can tap into about 50% of my house's value any time I want instantly by writing a check or transferring money to one of my other accounts.
forrestthewoods
Uhhh if you have $500k in house equity you can setup a HELOC line of credit in a week. If you want to fully cash out the equity you can do that too.
Liquidating 500k in stocks also takes more than a day to get in the bank.
jandrewrogers
Liquidity matters. Net worth is a notional value in most cases. Without an extremely liquid market it will not be realizable. There can be very large gaps between notional value and realizable value.
A non-liquid asset may effectively be unusable as a security for credit, which is the point being raised. You can have a large net worth on paper and literally no way to leverage those assets into cash should the need arise. In financial economics this is commonly called a "liquidity crunch"[0].
I recently read somewhere that in the US something like two-thirds of assets are non-liquid. Startup founders should understand this pretty intuitively.
aprilthird2021
Can't you borrow against relatively illiquid assets though? Like a house? It's only when you max out the line on those that you might hit a liquidity crunch
tmcz26
Reminds me of this 2019 post: https://ofdollarsanddata.com/climbing-the-wealth-ladder/
zug_zug
I don't get the point of these types of "5 levels of X"...
Like yes you can take any continuous variable and draw as many lines in the sand as you'd like (5 levels of tallness, or even 27 levels of tallness, or whatever) and actually say nothing while apparently sound like you're saying something??
geor9e
Is ↑7 a typo?
"A person with lower ↑6 wealth is a “high-net-worth individual” (HNWI, $1m)"
"About 16 million people (↑7) are designated as HNWI."
Sprotch
I’d argue focusing on wealth inequality is precisely the wrong approach. A better approach would be to look at the quality of life of the poorest.
rectang
Eventually huge wealth inequality impacts quality of life because quality of life is not measured exclusively in cheap toasters.
For starters, look at the proportion of income that goes to rent:
https://www.jchs.harvard.edu/blog/rental-housing-unaffordabi...
> The net effect of this longer history is that renters today spend much more of their incomes on rent than they did in previous generations. The median renter household in 1960 spent less than a fifth of their income on rent. By 2022, housing costs consumed 31 percent of the median renter’s income.
As inequality has increased, life has become more uncertain for those towards the bottom, because the cost of recovering from adverse life events (health crises, unemployment, etc) has become increasingly unmanageable.
Nifty3929
Yes, and also numerical "wealth" is not the same as stuff. Rich people often have very high numerical wealth, but actually don't have so much more "stuff" - houses, medicine, food, etc. They will certainly have more of these things, but maybe 100x not 1Mx.
For example, let's say that Musk is 250k times wealthier than I am. Does he have 250k shoes? Houses? Not really.
And it's the consumption of stuff that is really the share that one takes from society, not "wealth." Having $1 might be wealth, but it is not until I spend that Dollar on an apple that I have taken something from society.
Epa095
He has infinitely times more jets than me though.
But the focus on their personal consumption is not the most important. There is a limit to how much ice-cream a person can eat, and at some point the money is no longer used for direct personal consumption. But rather to influence the world in whatever direction they want.
dougb5
I reminds me of how Sam Altman recently said: "I'd rather hear from candidates about how they are going to make everyone have the stuff billionaires have instead of how they are going to eliminate billionaires." But the hyper-wealthy don't just have _stuff_, they also have power to make decisions affecting society -- to buy elections, to buy social networks, to influence which countries we do AI chip deals with, to start new cities, and so forth. A world in which everyone has the same amount of this decision-making power is probably not a world in which billionaires exist.
null
fragmede
More to the point, he has the same 24 hours in a day as everyone else. His money lets him do different things with those 24 hours than you and I, but he still only gets 24. (Until he gets to Mars, then it's 24.66.)
vjvjvjvjghv
[delayed]
lazide
Eh, even the ‘taking’ in this example isn’t so simple.
By spending that $1, you’ve also given a farmer (plus middle men, plus a retailer) $1 they otherwise wouldn’t have had - and relieved them of an apple they already have too many of.
The big ‘taking’ events are when things are destroyed without an exchange of value (aka if those farmers can’t sell the apples because a new law passes, or there is a disease event, or the like), or where a market is cornered/controlled/manipulated to the extent someone is forced to sell for an artificially induced (lower) price, or sell at an artificially induced (higher) price.
Smaller ‘taking’ events are when something is actually consumed, but that has to happen eventually, and someone paid for it to happen. Which means they also traded something else for that money (time, work, whatever).
Otherwise, it’s numbers moving from one side of the book to the other. Things aren’t lost/destroyed, but are moving around.
Epa095
Money is not like mana in a game, it does not create things by itself. It is more similar to votes, each dollar is a vote into the economy for what should be created, and where the goods and services should go. And the more money you have the more votes you have.
So yes, he payes for the apple, and that's good. But the apple existed, and would be sold to someone else if he had not bought it. The accumulation of wealth does centralise power over the economy, what gets produced, and how it gets consumed.
bijection
Though I agree that inequality is less important than the quality of life of the poorest people, this article explicitly tries to characterize the latter, so even though this is done in the name of discussing wealth inequality, I'm not sure your comment applies here.
loeg
The whole article is about creating a log-ish scale comparison system.
dasil003
Why is it "precisely the wrong approach"? And why does it have to be just one?
I agree looking at the quality of life of the poorest is a valuable barometer for the quality and success of a society to serve all its people. Similarly I think looking at the richest and what checks exist on their power also says a lot about the health of a civilization. It also makes perfect sense to me that we would look at wealth distributions as well. After all comparison and competition is core to the human experience, is entirely relative, and more visible than ever in the age of the internet and social media. These dynamics massively impact individual perceptions of success and political priorities, fairness being a deeply baked value in the human wetware (just ask any 5-year-old), so not sure why we wouldn't want to address them directly. Certainly there's more value than in the superficial tribalism and dog whistle culture that passes for political discourse today?
CGMthrowaway
Agreed. Unfortunately humans are hardwired to compare themselves to others.
jimkleiber
I'm reflecting more these days on what I call "trust inequality." I'm curious how much trust in each other relates to wealth. Any thoughts?
null
wyre
>I’d argue focusing on wealth inequality is precisely the wrong approach.
Okay, so whats the argument? Wealth inequality and the QoL of the lowest wealth individuals are intrinsically linked, because we live under systems of government with powers of taxation and goals to increase the QoL of their citizens. At what point does the poorest become wealthy enough that immense levels of wealth-hoarding, especially by individuals, is okay? I cannot believe with a good conscience that at any point it becomes okay, unless we are all living in a utopia. If you don't agree with socialism, that is what it is, but to care about the QoL of the poorest without wanting actual support networks for those people isn't rational and seems more like moral posturing.
Gooblebrai
I might be dense today but I thought the upper arrow was like a "Level of wealth" thing. However here:
> About 16 million people (↑7) are designated as HNWI.
What does the ↑7 means? Later he starts using it in a context that I don't understand (e.g. > About 250,000 people (↑5.5))
Gooblebrai
Ah, I was missing important context: https://saul.pw/mag/
dougb5
It's an order-of-magnitude notation used in Saul's "MagWorld" writings and podcast. Recommended: https://saul.pw/mag/
trollbridge
Interesting. I guess I would be a 5, but live like a 2, as it’s less stressful that way.
I have friends who are 6’s and acquaintances who are 7’s and their manner of thinking and goals in life baffle me. I simply cannot relate to them at all.
dougb5
The "↑11" bucket -- which Saul labeled as "Megacorps ($300b-$3t)" -- now contains at least one individual human. How far we've come (or fallen?) in just a year.
pton_xd
Too granular, there are 4 levels of wealth: the destitute, those who have to work, those who have enough assets to not work, and finally the elite who influence the rules of society.
trollbridge
I think he was spot on. There is a huge difference between his -1, 0, and 1. Likewise, the 1, 2, 3, 4 and 5 are vastly differently even though they all have to work.
(Oddly enough the -1 and 0 don’t work, because they can’t, so the -1 and 0 have something in common with the 6 and above.)
gpt5
Those who have to work capture almost all of society.
It’s a little odd to clump everyone into the same bucket of wealth.
thrance
What was the line again? The 80 richest men own as much as the bottom 50% of humanity?
trollbridge
Yet the ones who don’t work cause an outsized amount of social problems.
bbor
I see where you're coming from on a methodological level, but
1. Capitalists control our society, and live completely different lives than the rest. A typical CEO is certainly quite privileged, and may even work their way up to true wealth eventually! But at the end of the day, they're still clocking in for at least 40 hours a week to do something they'd rather not do, and their life would be completely upended if they had to stop working for some reason. The difference between Pichai and Bezos dwarfs the difference between Pichai and me for these reasons, IMO.
2. Capitalists directly control ~50% of the capital in the US last time I checked. It makes sense to split any given pie in half IMO, at least to start!
hollerith
>Capitalists control our society, and live completely different lives than the rest.
Also, the Capitalists are good at keeping thing hidden from us. For example, we do not know how they arrive on Earth. I certainly don't believe they aren't born to a mother and a father like the rest of us.
nis0s
This is also a good article with demarcations you can use to evaluate either family or personal finances and wealth,
https://www.kiplinger.com/personal-finance/605075/are-you-ri...
pavlov
> ‘“Net worth” is an unfortunate term, because a human’s “worth” is obviously more than just their wealth.’
I grew up in a fairly egalitarian 1980s Nordic society and English is my third language.
I remember the first time I heard “worth” used in this American idiom:
“Person X is worth $Y”
It was shocking; almost like the most forbidden thing you could say, a glimpse of eugenics. If a person’s worth is measured in dollars, what does that say about the worth of underpaid women and minorities and children with development challenges…?
In the decades since, Silicon Valley has moved so far right that this barely registers anymore.
brettgriffin
I don't understand this (and I didn't understand the point in the post).
When we discuss someone's net worth, we are specifically discussing their assets less their liabilities. We use it primarily to distinguish their purchasing power and credit-worthiness.
It is not a metric that is attempting to define their worth as a person. What standardized metrics could you possible use to measure that, and for what purpose would you use that metric?
If you're filling out a mortgage application in a Nordic country, are these hypothetical underpaid women and minorities considered more credit worthy regardless of their net worth and income?
collingreen
This doesn't seem to reflect the whole story or the gparent post about the word choice of "worth" instead of something closer to what you're describing. Trying to twist the point into credit risk also doesn't fit here.
To paraphrase gp, they found it shocking to have the word for a persons value to be the word used when describing how much money they have access to.
I've personally heard many people many times describe money and income as a way to measure either someone's value to society or how much society values them. This is very much in line with the gp - why would wealth have anything to do with your value as a person.
fragmede
> It is not a metric that is attempting to define their worth as a person.
You may not read it that way, but when you've never encountered the question before, the first time you see it being asked in the first place, it's comes across, not as an innocent question on a form that's just a reasonable part of a big process, but as a confrontation of a foreign culture that you've read and heard a lot about your whole life, only to be confronted by in that moment: What are you worth as a person?
That's not a common question to get asked. Okay, fine, the questionnaire is only asking as a business process thing, but the estimate is at about $10 million when broken down for parts, but at the point where someone's asking that question in the first place, you have to ask why are they asking?
Which you also point out,
> for what purpose would you use that metric?
The difference between worth and net worth is only one word, but like "guys" and "you guys", that one word makes a world of difference.
How would you define someone's worth as a person? It's because we don't talk about that at all, that even the question of net worth in the first place comes across as having a slight whiff of eugenics, because we have no other standardized measurements. Net worth is the only evaluation of how much any given individual a human is worth that has a magazine for it and list of all the high scores.
pavlov
> “It is not a metric that is attempting to define their worth as a person.”
Yet that’s literally the word being used.
Imagine if a language called men “the better sex.” One could argue that it’s just a word and people don’t take it for its literal meaning. But you’d wonder why people go along with that. Don’t they notice what they’re saying? That’s the feeling I got from “person X is worth $Y” back when I first heard it.
gishh
Net worth is purely about assets minus liability. “How many dollars are attached to your tax identity and how many dollars of stuff can be taxed”
It has zero to do with the value of the the life of a person. You can conflate the two if you’d like, you’re picking on shortcut verbiage so we don’t say a paragraph of disclaimer text before talking about net worth.
hshdhdhj4444
This is a nice start to develop a language to discuss wealth.
99 vs 1%, normal vs millionaires vs billionaires, lower vs upper vs middle class, investor vs working class are some of the language I’ve seen used.
All of them are extremely inadequate and allow the |^7-11 folks to get away with a lot that they shouldn’t by scaring the folks at |^4-6 that it would apply to them.
fragmede
I really like the introduction of the ↑N notation as a way to less crassly discuss people's financial standing in life.
Calling someone broke is seen as an insult, but maybe saying that someone is at ↑1 won't be taken as a horrible insult when discussing someone else's situation.
> Generally, someone’s wealth level can be inferred from their net worth.
> But also, “assets minus liabilities” offers some large shadows to hide behind.
> So a better quantity to measure would be: the amount of money someone could bring to bear on a problem if they had to. If someone they loved fell deathly ill, but the treatment would cost some large amount of money, how much could they pull together in a month or two? How much could they borrow, and from whom, and on what terms?
The following breakdowns are largely just people's net worth (assets minus liabilities) with the credit they can tap because of their assets.
Not sure I entirely understand the point. Yeah, people with assets are generally more credit-worthy and can tap lines of credit.