Wealth Inequality

Wealth Inequality is a financial situation in which there is a significant disparity in the wealth and financial resources among individuals, specific populations, or the country as a whole. It implies that one class of people has considerably more assets, real estate, investments, and resources, whereas others may find it challenging to make ends meet.

If wealth disparities are not addressed, they may widen, making the issue more severe. Individuals can take several actions to secure themselves against wealth inequality and aim for a stable financial future. Even though structural change is essential, individual behaviors may have an impact, too.

Wealth Inequality is the uneven allocation of assets among people or groups in the community or nation. It consists of a lack of monetary resources and a deficit of social capital, which enables individuals to take advantage of the opportunities and associations required for living life to a high standard. The issue is complicated as the unequal distribution of wealth, income, and opportunities around the world can be triggered by several elements. This often leads to unrest and hostility that affects the entire society.

The complexities of wealth inequality arise from the presence of several interconnected factors that depend on each other. Lack of access to high-quality medical care, learning, or accommodation can all make it more difficult to obtain financial resources, which reduces an individual's likelihood of prospering. In order to lower inequality, individuals must begin establishing a social structure that promotes accountability, cooperation, and shared responsibility. 

The causes of wealth inequality have been discussed below:

• Accessibility: The cycle of inequality is often sustained because wealthy individuals often have better access to medical care, educational opportunities, and employment prospects.
• Financial Obligations: Having financial obligations can put people, communities, or even entire nations in a never-ending cycle of economic hardship. Debtors may be unable to repay their loans due to high interest rates, and even moderate interest rates can swiftly escalate out of control.
• Inflation: Inflation is a common economic trend that occurs when the cost of products and services rises over time. However, when inflation surpasses earnings, it can become a severe issue for individuals and nations.
• Generational Wealth Transfer: Wealthy individuals can accumulate wealth and often leave it to their family members, which results in increased wealth for future generations. 

Let us have a look at the following examples to understand the concept of wealth inequality:

Example #1

Let us assume that David belongs to a low-income family, and due to financial constraints, he had to drop out of school. David started working as a construction worker and received minimum wage. As a result, David was unable to accumulate substantial wealth and assets. On the other hand, Jake, who is the same age as David, comes from a high-income household. Due to his family's wealth, Jake had access to quality education, which enabled him to obtain a job that paid him well. He accumulated significant wealth and assets due to his financially privileged background. This is an example of wealth inequality.

Example #2

According to a New York Fed study, from the beginning of 2019 to the third quarter of 2023, the inflation-adjusted wealth of white households in the United States increased more quickly than that of Black and Hispanic households. The Black households specifically are currently experiencing worse financial circumstances than they had before the start of the pandemic. The data revealed that the net worth of white families was 28% greater in the third quarter of 2023 than it was at the beginning of 2019. On the other hand, the net worth of Hispanic households was 20% higher, and that of Black families was around 1.5% lower than it was preceding the pandemic. This is another example of wealth inequality.

The consequences of wealth inequality are:

• Widespread socioeconomic problems: An individual's standard of living is significantly reduced when they are unable to pay for their housing, food, or medical expenses. Additionally, individuals with unstable financial circumstances lack the time and resources to give attention to other activities, which may negatively impact entrepreneurship, business, arts and culture, and education.
• Unrest and stress: One of the primary causes of stress is financial uncertainty. Stress can have a severe negative impact on an individual's mental and physical well-being and society as a whole. Prolonged inequality among significant population groups can lead to political and social turmoil.
• Unequal influence: Compared to the rest of the population, organizations and individuals with substantial financial resources may have an imbalance of power over public policy. This status may alter the social structure without the participation of all citizens.

Some ways to reduce wealth inequality include the following:

• Creating assets for working families: Struggling households can benefit from policies that promote excellent savings rates and reduce the cost of asset accumulation for middle-class and working-class households. Lower-income households may benefit from new initiatives that directly enroll employees in retirement savings plans and offer a savings benefit or a federal match for retirement savings accounts. Homeownership and fair access to affordable financial services are also essential approaches to financial success.
• Create a more progressive tax code: Tax rates for the wealthy have been falling while their proportion of income and wealth has grown considerably. Capital gains tax rates must be changed to ensure that they are in accordance with income tax rates.

The differences are as follows:

Wealth Inequality

• This inequality implies the uneven distribution of resources among people or communities in an economy or nation.
• It includes a deficit in the social capital as well as financial resources.
• It estimates the distribution of net worth within a group of individuals.

Income Inequality

• Income inequality is the uneven distribution of income throughout an entire population. 
• The term "economic inequality" is vast in scope and can refer to disparities in wealth along with income as well as other indicators of living standards.
• Income inequality calculates the distribution of income among a group of individuals.