policies, can become a more effective and lasting remedy against poverty (Gamble and Prabhakar 2005).
Finally, the underlying conviction of the neoliberal free market policies associated with the “property-owning democracy” in Britain and the “ownership society” in the US—policies that promoted the dispersion of property ownership throughout the population—is that families should be given incentives for owning homes and should have more control over their retirement savings, their financial investments, their healthcare, and their children’s education (Williamson 2012; Shiller 2012). There are, however, reasons for considering a more cautious approach to property ownership than the adoption of blanket ownership policies. While the benefits of asset ownership have been documented, owning homes, businesses, and pension plans has been associated with greater financial vulnerability for some households. The “privatization of risk” (Hacker 2004)—that is, the general shifting of financial risks from society to households—results in greater financial debt and other economic burdens associated with financial loss and the repayment of loans (Hyman 2012; McCarthy 2017; Wray 2005).
Wealth as portfolios
Personal wealth is made up of various assets (real estate, stocks, business, etc.), which are embedded in a range of markets, require specific levels of maintenance and care, and vary in the degree of control that the owner has over them. Certain assets are subject to special tax rates, and the ability of owners to liquefy and transfer assets is not uniform (Clignet 1998; Wolff 1996).
There are a few general typologies of asset categories. Taking into consideration the different economic functions of assets as well as their liquidity (their capacity to be converted into cash), economist Edward Wolff proposed three categories of wealth (Wolff 1996): “financial wealth” covers household net worth minus net equity in owner-occupied housing, because such property requires more time to be converted into cash; “marketable wealth” (or net worth) is the net value of all “marketable or fungible” (liquid) assets, minus any liabilities or debts; and “augmented wealth” adds pension wealth and social security wealth to household net worth.
Another common classification system separates assets into two categories. The first includes liquid or financial assets that have no intrinsic value but represent contractual claims to assets: stocks, bonds, checking accounts, retirement accounts, and so on. The second category encompasses tangible or “real” assets that have consumption value: vehicles, primary residence and other real estate, businesses, and other assets, for example miscellaneous non-financial ones (jewelry, works of art, fine furniture).
Relatedly, a third typology focuses on the function and key purpose of assets and divides household wealth into two general categories: functional or non-productive assets, which have use value for the family as an economic unit; and financial assets. Functional assets—the family’s vehicles and main residence—make up a significant share of the net worth held by the vast majority of households. Owned for their use value, they nonetheless tend to produce economic benefits while servicing their owners. For example, car ownership improves mobility and can indirectly enhance job opportunities and access to services (Lerman and McKernan 2008; Piketty 2014: 47; Oliver and Shapiro 1995: 105), while main residences provide shelter and space for families to live, raise children, work, and entertain in. The equity held in a main residence can appreciate over time and can be used as collateral against loans, which enhance the household’s consumption, investment, and savings. These assets are typically visible to the public and recognized as status symbols.
Unlike functional assets, financial assets are less conspicuous. They are held in bank accounts, college savings accounts, loans, corporate stocks, and retirement accounts and are more unevenly distributed within the population. Whereas functional assets are wanted for their use value, the primary motive for possessing financial assets is their exchange value and the expectation of future price appreciation and income.
Additionally, while a family’s main residence is immobile, more difficult to liquidate, and subject to price changes according to local housing markets, financial assets require fewer intermediaries and are more easily transferred and exchanged in global markets (Clignet 1998: 95). Consequently, financial or income-producing assets such as stocks and bonds represent liquid wealth and are particularly important for household finance on account of their capacity to be easily converted into cash. The distinction between financial and functional assets is especially common in research on income stratification. This line of study often separates the sources of income into labor income (wages and earnings), which is earned in exchange for labor effort, and asset-based income, which takes the form of dividends, interest, rent, or capital gains from the sale of stocks or real estate (Piketty 2014: 17, 48). For scholars interested in wealth, the latter kind of income stream is of great importance because it does not require the same degree of time and effort as labor income does.
Finally, the distinction between productive and non-productive assets also bears on the conceptually fundamental distinction between social class and social status. While ownership of productive property is associated with class and economic power, ownership of consumption goods—or “property of private appropriation” (Newby et al. 1978, quoted in Knight 1982: 4)—is tied to inequality based on lifestyle and social status (Saunders 1978; Sorensen 2005). As Parkin (2014: 195) puts it, “[i]t is clearly necessary to distinguish property as possession from property as capital, since only the latter is germane to the analysis of class systems.”
Wealth as net worth: A continuous and unbounded variable
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)
