The Definition of a Millionaire
The term "millionaire" evokes images of celebrities, athletes, and business magnates. It's originally a French term used to describe the men made 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 money.
Through global warfare, credit catastrophes, and a dramatic concentration of wealth among a small percentage of people, the 20th century propelled mankind's contemporary obsession with the consumer comforts and luxury brands enjoyed by the rich and famous.
In the wake of 120 years of inflation, $1 million hasn't retained the exceptional buying power it had in 1900, which would be equivalent to about $31 million in 2019 dollars. The general definition of a millionaire is a person or a married couple whose net worth is greater than $1 million USD, and under this classification, the number of millionaires globally has multiplied dramatically over the past century. Despite inflation and subsequently weaker buying power, the U.S. dollar is the international measuring stick 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 among members of high society.
Net worth is a hypothetical summary of the total financial value of a person's balance sheet, taking into account the appraised value of all non-liquid assets. The concept is meant to be representative of a person's assets minus their liabilities, or simply, what they own minus what they owe.
Categorizing millionaires in this way is not cut-and-dry when factoring in non-liquid assets, as the price of consumer goods rises and falls, and in an economic slump, it's unrealistic for assets to fetch full price on the market.
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 imagine that John Doe has the following liabilities:
- Mortgage: $120,000
- Car Loan: $5,000
- Total Liabilities: $125,000
According to the what you own minus what you owe formula for calculating net worth, John Doe is technically a millionaire. The value of John's assets equal $1.17 million, and his liabilities total $125,000, meaning his total net worth (assets minus liabilities) is $1,045,000. Thus, John is technically a millionaire.
Despite these numbers, an opposing school of thought rejects John's classification as a millionaire, claiming that the value of his home, car, and personal belongings (such as his clothing, electronics, or antiques) should not count. This approach to wealth classification and analysis espouses liquid assets (such as cash, money market instruments, and marketable securities) as the one true qualification for millionaire status.
This methodology for calculating John's millionaire status assumes that John would be unlikely or unable to liquidate all his assets for cash, even if he wanted to do so. John needs the house he lives in, the car he drives, and the clothes he wears each day, and thus he cannot readily liquidate these assets. Furthermore, even if they went to market, his antiques may fetch unpredictable resale prices, and valuable artwork is difficult to sell quickly. Certainly, he can have these assets appraised, and he can leverage them to finance a big purchase, but he doesn't have the liquid assets necessary to be called a millionaire by the contrarian definition.
Despite inflation and subsequently weaker buying power, the U.S. dollar is the international measuring stick for qualifying millionaires.
Those who would argue John is not a millionaire might say only his liquid assets should be considered. These include his mutual funds, stock funds, and cash. Some people would also count the value of his retirement account—others wouldn't, given that those assets are protected from bankruptcy filings. Either way, John Doe is not a millionaire once those personal belongings are left out of the equation.
Yet another school of thought would adjust the value of John's house, car, and personal possessions. 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, and credit any spending beyond this number toward his net worth.
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.
Inflation Calculator. "U.S. Inflation Rate, $1,000,000 From 1900 to 2020." Accessed March 22, 2020.
Spectrem Group. "Spectrem Group’s 2019 Market Insights Report Reveals 10th Consecutive Annual Increase in Wealthy American Households." Accessed March 3, 2020.