Definition and Examples of Millionaires
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.
For example,suppose you have assets totaling $1,400,000 ($1.4 million) and liabilities totaling $200,000. In that case, your net worth would still be $1.2 million, meaning that you fit the definition of a millionaire.
How Being a Millionaire Works
When considering whether someone is a millionaire, in most cases, you consider their net worth.
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 "millionaire" should apply to people with total assets over $1 million or only to those with liquid assets in excess of $1 million, the definition remains contested.
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 straightforward 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.
A Millionaire's Profile
Suppose that John Doe has the following assets:
- House: $350,000
- Car: $10,000
- Retirement Fund: $600,000
- Stocks: $80,000
- Mutual Funds: $100,000
- Resale Value of Non-Liquid Assets: $20,000
- Cash: $10,000
- Total Assets: $1,170,000
Also suppose 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. That 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.
Those who would argue that John is not a millionaire might say that only his liquid assets should be considered. These assets include his mutual funds, stocks, and cash.
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.
A multi-millionaire would be someone who has several million USD when their net worth is considered. A decamillionaire, more specifically, is someone who has between $10 million and $99.99 million.
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.
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, usually the U.S. dollar.
- 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, minus liabilities.