In the U.S., a millionaire is someone whose wealth (or net wealth) is valued at $1 million USD or more.
Learn more about what it means to be a millionaire today, how the term “millionaire” came to be, and how to know whether someone is, in fact, a millionaire.
What Is a Millionaire?
Today, the most common definition of a millionaire is a person or a married couple whose net worth is greater than $1 million USD. Under this classification, the number of millionaires around the world has multiplied over the past century.
Despite inflation and subsequently weaker buying power, the U.S. dollar is the international measure for qualifying millionaires.
According to a Spectrem Group Market Insights Report, there were 11.8 million Americans with a net worth of at least $1 million in 2019. Whether this term should apply to people with total assets over $1 million, or only to people with liquid assets in excess of $1 million, the definition remains contested.
How Being a Millionaire Works
When considering whether someone is a millionaire, in most cases, you consider their net worth.
A person's net worth is like a summary of the total financial value of their balance sheet. Net worth takes the appraised value of all non-liquid assets into account. This concept represents a person's assets minus their liabilities. In other words, net worth is what they own minus what they owe.
Categorizing millionaires in this way is not cut-and-dried when factoring in non-liquid assets. The price of consumer goods rises and falls; in an economic slump, it's unrealistic for assets to fetch full price on the market.
By looking at a person's balance sheet, you could figure out whether they are worth at least $1 million, after considering their wealth and debts.
Where the Term "Millionaire" Originates
The term "millionaire" comes from French. It was used to describe the men who became rich off of speculative investments in the New World. By the standards of the 18th century, a millionaire was someone who had amassed an unimaginable amount of wealth.
In the wake of 120 years of inflation, $1 million hasn't retained the exceptional buying power it had in 1900. In 2021 dollars, it would be equivalent to about $31.5 million.
Example of a Millionaire's Profile
Let's say that John Doe has the following assets:
- House: $350,000
- Car: $10,000
- Retirement Fund: $600,000
- Stock Fund: $80,000
- Mutual Fund: $100,000
- Resale Value of Non-Liquid Assets: $20,000
- Cash: $10,000
- Total Assets: $1,170,000
Let's also say that John Doe has these liabilities:
- Mortgage: $120,000
- Car Loan: $5,000
- Total Liabilities: $125,000
According to the formula for calculating net worth—what you own minus what you owe—John Doe is a millionaire. The value of John's assets equals $1.17 million, and his liabilities total $125,000. This means his total net worth (assets minus liabilities) is $1,045,000. Thus, John is a millionaire.
Despite these numbers, some may reject John's classification as a millionaire. Some claim that the value of his home, car, and personal belongings (such as antiques) should not count.
This approach to wealth classification and analysis claims that liquid assets (such as cash and marketable securities) are the one true qualification for millionaire status.
This method for calculating John's millionaire status assumes that John would be unlikely or unable to liquidate, or sell, all his assets for cash, even if he wanted to do so.
Even if they were to go to market, his antiques may fetch unpredictable resale prices, and valuable artwork is difficult to sell quickly. Of course, John can have these assets appraised and can use them to finance a big purchase, but he doesn't have the liquid assets necessary to be called a millionaire by this other definition.
Some people would also count the value of his retirement account, and others wouldn't. That's because those assets are protected from bankruptcy filings. Either way, John Doe is not a millionaire once those personal items are left out of the equation.
Yet another school of thought would adjust the value of John's house, car, and personal items. Surely, he needs to live somewhere, but he doesn't need a $350,000 house. This kind of wealth analysis would calculate a basic housing allowance for John. Then, it would credit any spending beyond that number toward his net worth.
Multi-Millionaire vs. Millionaire
The difference between a multi-millionaire and a millionaire comes down to the numbers.
As stated before, a millionaire is often defined as a person whose net worth comes to $1 million (or more) USD.
A multi-millionaire would be someone who has several million USD when their net worth is considered.
The Bottom Line
There is no consensus as to whether or not John Doe is a millionaire, but one thing is certain: He doesn't have a huge amount of cash in the bank. Most of his money is tied up in housing and investments, and this differentiates him from the super-rich.
Just because he has earned the net worth and status of millionaire on paper doesn't mean he can spend as lavishly as an 18th-century duke.
- A millionaire is someone whose net worth is equal to one million (or more) units of currency.
- To know whether a person is a millionaire, you typically take their net worth into account.
- Net worth is the total value of a person's financial and non-financial assets, including any debts.