Why is the highest quintile the only quintile whose wealth exceeds its income?
"I think you came up with a worthy Masters/PhD research project, it is a great question. This is in Australia so it is difficult for me to have complete perspective.  However, I can speak about the US of A. To your first point relatively few people inherit their wealth.  According to a brief web search about 38% of billionaires, and 20% of millionaires inherited their wealth.  The rest are self-made. Again, in the US, income mobility is very common.  Some act like high level earners are just born that way, but studies have shown that a great deal of income mobility exists.  I personally know people that have grown up without indoor plumbing, and extremely poor but now earn in the top 5% of wage earners.   Quid's points are valid.  For example a Starbucks, new I-Phone, and a brake job on your car are somewhat catastrophic if your income is 50K/year, hurts if your income is 100K, and an inconvenience if you make 250K/year.  These situations are normal and happen regularly.  The first person may have to take a pay day loan to pay for these items, the second credit card interest, the third probably has the money in the bank.  All of this exaggerates the effect of an ""emergency"" on one's net worth.    To me there is also a chicken-and-egg effect in wealth building and income.  How does one build wealth?  By investing wisely, planning ahead, budgeting, delaying gratification, finding opportunities, etc...  Now if you take those same skills to your workplace isn't it likely you will receive more responsibility, promotions and raises?  I believe so.  And this too exaggerates the effect on one's net worth.  If investing helps you to earn more, then you will have more to invest. To me one of the untold stories of this graph is not just investing, but first building a stable financial base.  Having a sufficient emergency fund, having enough and the right kind of insurance, keeping loans to a minimum.  Without doing those things first investments might need to be withdrawn, often at an inopportune time, for emergency purposes. Thanks for asking this!" There are a lot of forces at play here, one of which is addressed in your second bullet point. Housing, transportation, food, and healthcare are pretty much the staple expenses of a modern day human.  While these expenses all have a range from minimum required to function and luxurious all humans incur these costs.  The lower rung wage earners earn an amount closer to their actual costs than higher earners.  As income scales up these expenses typically also scale up with different lifestyle choices.   There reaches a breaking point though where is so much excess to your income that you begin meaningfully spending on investments; you may also begin to take a meaningful portion of your compensation in securities rather than currency.  In times where the economy is booming, folks who hold assets in securities rather than currency really win.  In 2008 people in that highest rung really took a wealth hit (and probably an income hit). In a business environment, this phenomenon could be easily explained by 'operational leverage'. Operational leverage is the principle that increasing revenues by a small amount can have a disproportionately large impact on net income. Consider this example: you run a business that rents out a factory and produces goods to sell to consumers. The rent costs you $10k / month, and all of your other costs depend on how many goods you produce. Assume each good gives you $10 in profit, after factoring your variable costs. If you sell 1,000 units, you break-even, because your variable profit will pay for your rent. If you sell 1,100 units, you make $1,000 net profit. If you sell 1,200 units, you double your overall profit, making $2,000 for the month. Operational leverage is the principle that adding incremental revenue will have a greater impact than the revenue already received, because your fixed costs are already 'paid for'. Similarly in personal finance, consider these scenarios: You have $1,000 in monthly expenses, and make $1,000 - your monthly savings (and therefore your wealth) will be zero.  You have $1,000 in monthly expenses, and make $1,100 - your monthly savings will be $100 per month. You have $1,000 in monthly expenses, and make $1,200 - increasing your income by ~10% has allowed your monthly savings double, at $200 per month. You have $1,000 in monthly expenses, and make $2,000 - your monthly savings are 5 times higher, when your income only increased by ~80%. Now in the real world, when someone makes more money, they will increase their expenses. This is because spending money can increase one's quality of life. So the incline does not happen quite so quickly - as pointed out by @Pete & @quid, there comes a point where increased spending provides someone with less increase in quality of life - at that point, savings really would quickly ramp up as income increases incrementally. But assuming you live the same making $2,000 / month as $1,000 / month, you can save, every month, a full month's worth of living expenses. This doesn't even factor in the impact of earning investment income on those savings. As to why the wealth exceeds income at that specific point, I couldn't say, but what I've outlined above should show how it is quite reasonable that the data is as-reported.
TL;DR: Income is how much you make, net worth is the value of all your assets: cash, real estate, stocks, etc.  With the case of Buffett: Berkshire Hathaway's - Buffett's company - market capitalisation is ~$460 Billion. Buffett controls 18% of shares. $460B x 18%: ~$80 Billion.  So we can estimate that a large part of his net worth is tied up in BH stock (obviously this isn't perfect either as there are other factors at play here).  BUT this is only on paper. Ie yes he's worth that, but he doesn't really have $80 Billion somewhere in a bank. He gets the money to live from other personal investments and business means. [Here's](http://www.marketwatch.com/story/this-is-how-much-money-exists-in-the-entire-world-in-one-chart-2015-12-18) and explanation.  The broadest interpretation is that there are quadrillions (1,000,000,000,000,000) of dollars in various markets.  Bill Gates could become a Trillionaire, so even his wealth is a drop the ocean. Well, not really, but you get the idea.  A lot of this money is constantly on the move, it is impossible to track down all the movements. Value is increasing, Value is destroyed etc.  Your bank account can be tallied, but it's impossible to track down the money of the world, a continent or even a small country. Even bigger companies have trouble tracking down their money.  The idea of the 'tally' is a bit of an outdated one, it came from a time when there was a gold standard, and when old fashioned marxism  was still a thing.  //edit: words, English, difficult You can say it's a bad proxy but practically all the richest people have their money tied up in equities, and it would be foolish for them not to. You have to include that somehow. Net worth is not just liquid assets The logic is that the value of America could be determined by adding up the assets of all Americans.  If houses are more expensive then America is richer (we own a large number of more expensive houses), even though no additional real assets have been created (as if more houses were built). And most wealth is squandered by the third generation. Someone has to become independently wealthy for the cycle to start over. Many will read this headline and use it as an excuse for their own lack of will to succeed. Someone had to succeed independently at some point, to earn the original wealth. [Nope] (https://blogs.wsj.com/wealth/2010/07/13/worlds-rich-are-hording-10-trillion-in-cash/). It's all hoarded in various index accounts, mostly off-shore for obvious reasons. They want to protect their wealth, which is fine. But if you want to protect wealth you don't invest it all in means of production or real-state, which are both vulnerable to heavy crashes. You keep it protected interest-yielding accounts, in places like the Cayman Islands, or Switzerland. It all depends on the country.  In the US, mobility at the top is reasonably high (ie first generation millionaires, first generation billionaires, etc).      In other western countries, mobility at the top is very poor.  This is typically due to regulation and taxes that make it incredibly difficult for small businesses to be compliant and compete (ie hire a bad employee as a small startup, and it can cripple the business if you cannot easily fire them).     Mobility at the bottom is reversed.   Getting out of abject poverty in the US is incredibly difficult, almost impossible.  In other western countries it is not easy, but far easier than the US thanks to those social safety nets. In addition to those who are wealthy (not the same as high income), there are also a certain number of people whose professional livelihood is enhanced by projecting wealth/income they may or may not have. For example, some consultants, lawyers, financial advisors or other salespeople. The same is true of luxury homes for industries where entertaining clients and associates is expected. These people are essentially making an educated bet that the additional sales they expect to make will outweigh the additional expense of the luxury items, similar to purchasing advertising. But in many cases, people are either living beyond their current income, or living beyond their long-term income by failing to save for when they are too old/sick to work. Additionally, many car brands that we traditionally associate with luxury have created mid-priced lines in the $30-40K range recently, so it is possible that some of the cars you are seeing are not as expensive as you might expect. I don't really understand the paper. To me, the top 1% do not make their income from salary, but rather from equity or various other asset-based income.   Mixing both in the paper to assume that if you don't make $100k/y on salary by 25 you're a loser (sorry, part of the 99%) is dishonest. Yes, but, that math is still inconsistent.   . . . . . . . If you haven't figured out, I'm just messing with you.  :D   But, to answer your question.  The highest GDP is not being even accessed by all members of our nation.  Hence, some people are living a top 1st world nation, some are in moderate 2nd level nation; while a good chunk are living as though they are in a 3rd world/developing nation. "As was stated, households earning over $250k/yr don't all get their income one way. Below that threshold, even in the six figure range, most households are in one of two categories; salary/wage/commission workers, and those living off of nest eggs/entitlements (retired, disabled, welfare). Above $250k, though, are a lot of disparate types of incomes: Now, you specifically mentioned wage earners above $250k. Wage earners typically have the same ""tax havens"" that most of us do; the difference is usually that they are better able to make use of them: In other words, there are many ways for a high-end wage earner to live the good life and write a lot of it off." "Thats why I think its really funny when everyone says Bill Gates or Carlos Slim or anyone else like that is the ""richest"" in the world.  It's all a floating benchmark based on that day's stock valuations and known stock holdings and has nothing to do with liquid cash or assets.  I'd be more curious to know about old European money such as Rothschilds, old country royalty and the true value of Rockerfellers assets." In fairness decline of velocity of wealth might not be entirely explained by wealth disparity but environmental decline. (Or the low hanging fruit theory if you will.) This is is the socialist belief. If true economists have a lot to answer for.  Beyond that the implementation of truly progressive tax rates could significantly help as the writer alludes to. The top is not anywhere near adequately sampled with such a low number of sample sizes which the IRS calls tax brackets. There are two main reasons for the difference between these two numbers: While there are a few people that are wildly wealthy, most of the people with more than 10 million have between 10-50 million dollars.  These people shield most of their estate and in the end the tax only effects a small portion of even the wealthy. "Really this is no different from any kind of large lump sum and having a mortgage.  There are probably many questions and answers on this subject.  It really doesn't matter that the proceeds were the result of a sale, an inheritance would not change the answer. I think it is important to note that the proceeds will not eliminate the house 2 mortgage. A high level choice of investment one makes is between equity (such as stock) and debt investments (such as bonds and mortgages).  You are in a unique case of being able to invest in your own mortgage with no investment fee.  This may tip the scales in favor of paying down the mortgage.   It is difficult to answer in your specific case as we don't know the rest of your finances.  Do you have a sizable 401K that is heavily invested in stocks?  Do you have the need for a college fund?  Do you have an emergency fund?  Do you have a desire to own several homes generating income property? If it was me I'd do the following in order, skipping steps I may have already completed: I've heard that the bank may agree to a ""one time adjustment"" to lower the payments on Mortgage #2 because of paying a very large payment. Is this something that really happens? I really kind of hate this attitude.  Your goal is to get rid of the mortgage in a timely manner.  Doing such makes paying for kids college a snap, reduces the income one might need in retirement, basically eliminates the need for life insurance, and gives one a whole lot of money to have fun with."