Wealth and income are totally different and unrelated!

By MUNGAI KIHANYA

The Sunday Nation

Nairobi,

04 February 2024

There is a common misconception that the financial wealth of a person is money t in the bank. As a result, we hear people making comments like “Elon Musk has more money that Kenya”. Such statements are based on the fact that Musk’s net worth (currently estimated as 200 billion dollars, or 32 trillion shillings) is far greater than Kenya’s gross domestic product (GDP = about Sh14 trillion in 2023).

But is that a fair comparison? No, it is not. GDP is not a country’s wealth. It is a measure of the value of what the country has produced withing a year. Comparing GDP to wealth is like comparing one person’s income to another one’s net worth.

While income can be used for the accumulation of wealth (saving a portion of salary and using it to buy some valuable property), the two are totally different and, often times, unrelated. Take the case of Elon Musk’s $200 billion wealth: did it all come from his income?

Some one posted on the Internet recently that, “if you made KSh1.2 million an hour since the birth of Jesus Christ, you still wouldn't be as rich as Elon Musk” The person had done this simple calculation: US$200 billion is equal to KSh32 trillion; 2024 years since the birth of Jesus Christ is 17,730,240 hours; divide the two numbers and you get…do the math.

But is that a valid calculation? We can find out by comparing Mr Musk’s earnings to his own net worth. Little is ever said about the income of the worlds wealthiest people. However, the information is easily available and, in the case of Musk, he earned about $250 million in 2023.

If we divide this salary to his net worth, we find that it would take him about 800 years to earn his wealth. So, the question that arises is: where did he get all that wealth from? It certainly wasn’t inherited since his parents, though not poor, are worth just two million dollars!

The $200 billion is not money in the bank; it wasn’t earned either. This figure is the value of the shares that Musk owns in various (listed) companies. It is like when one buys a plot of land for, say, Sh100,000 and then, five years later, its value appreciates to one million. Suddenly you are a millionaire, but you haven’t earned anything in that time!

Now we can understand how a man who earned $250 million in 2023 saw his net worth increase by $63 billion from $137B to $200B in the same period of time.