[ojbrien]

I find the use of this statistic really frustrating, if you're say an average westerner with $10,000 of debt and $2,000 savings - your net wealth is -$8,000. If on the other hand you sift through garbage somewhere in Africa and earn 50c per day your net wealth is ~$0. By this metric the garbage site worker is wealthier than the Westerner fresh from university.

[barrkel]

Sure; it's not counting human capital, or basically the net present value of future income streams available to someone.

In this respect, having debt is a positive sign, because banks evaluate loans based on expected ability to repay, i.e. future income streams.

[anfilt]

Well they are more wealthier till that debt is paid off. However, the metric does not include cash flow. The westerner has a greater cash flow than the person in Africa. However, what happen if that person looses their job? Suddenly, their quality life will probably drop. They might even end homeless unable to pay rent. However, the westerner is probably better off overall.

[goatlover]

It's all the wealth around you including the infrastructure that you can partially take advantage of that the African probably lacks.

[anfilt]

Henceforth, why I said probably better off.

[ComputerGuru]

Perhaps the first derivative of net wealth is a better metric?

[andrepd]

I think the point is that there are things that aren't captured by looking at wealth alone. Having a college degree, being inserted in a society that ensures peace, safety and well-being, all that has value.

[ComputerGuru]

> all that has value

Yes, and (ideally) currency in an economy is a liquid representation of value. A college degree translates (after accounting for inefficiencies) to higher income potential, more efficient spending, etc.

EDIT: typo, "liquid representation of value," not "wealth"

[barrkel]

First derivative of wealth would be income or spending. I think it's better to go the other way: consider the integral of cash flows over time (i.e. net present value). It would still be pretty uncertain.

[ComputerGuru]

Yes and no. I purposely chose the mathematical notation rather than the more common economical terms to convey a different idea.

If you look at the instantaneous\* derivative, it's not the fact that you owe the federal government $2M for that MD that counts but rather your monthly obligation. Debt doesn't matter, required repayment per unit of time does - so almost like cash-basis accounting.

Finding a $100 on the street or borrowing $100 from a friend are the same in terms of their addition to your instantaneous wealth, it's the fact that one needs to be repaid that detracts from your "actual" wealth, and the repayment period matters. Compare the lifestyle of two neighbors working at the same institution making the same amount of money that each took out $500k mortgages to buy their identical houses, only one took it out for 15 years and the other for 30. On day 1, they both take the same hit to their net worth, but that doesn't change their wealth derivative in and of itself, it's the rate of paying it back that you should be counting.

That explains why one college educated individual can get a loan for $1000 from the bank and at time 0 they are, under this metric, better off than someone that needed to hit up a payday loans place for the same loan but at a higher interest rate. They both "earned" the same amount of money, and may even "spend" it on the same thing at the same rate, but when you take the repayment period into account (let's say 1 year vs 2 weeks, respectively) you can see why the graduate student is measurably better off.

Just like stocks you hold aren't actually contributing to your day-to-day wealth (and as such aren't taxed) but it's when you cash out that you've either made or lost money.

\* let's define an "instant" as a month, just to make things easier.