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. Under this classification, the number of millionaires around the world has multiplied over the past century.
Note
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 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 GroupMarket Insights Report, there were 11.8 million Americans with a net worth of at least $1 million in 2019.
A person's net worth is like a summary of the total financial value of their balance sheet. This concept represents a person's financial assets minus their liabilities. In other words, net worth is what they own minus what they owe.
However, net worth includes the appraised value of all non-liquid assets, which are harder to liquidate (or sell) if needed. For this reason, there is some debate about whether the term "millionaire" should apply to people with total assets over $1 million or only to those with liquid assets in excess of $1 million.
Note
Categorizing millionaires 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 like real estate and antiques to fetch full price on the market.
Where the Term "Millionaire" Originates
The term "millionaire" comes from French and was first used in 1786. It was used to describe the men who became rich off of speculative investments in North America. By the standards of the 18th century, a millionaire was someone who had amassed an unimaginable amount of wealth.
In the wake of more than a century of inflation, $1 million hasn't retained the exceptional buying power it had in 1900. In 2022 dollars, it would be equivalent to about $34.8 million.
A Millionaire's Profile
By looking at a person's balance sheet and considering their assets and debts, we can figure out whether they have a net worth of at least $1 million. 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 other 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.
An Alternative Definition of Millionaire: Liquid Assets
Despite these numbers, some people may reject John's classification as a millionaire. Using an alternative approach to wealth classification and analysis, they argue that liquid assets (such as his cash, stocks, and mutual funds) are the one true qualification for millionaire status. According to this definition, the value of John's home, car, and personal belongings (such as antiques) should not count toward his millionaire status because 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, John's antiques may fetch unpredictable resale prices, and valuable artwork and collectibles are 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 definition.
Some people would also exclude the value of John's retirement account from consideration. That's because those assets are protected from bankruptcy filings. If his retirement savings are left out of the equation, John would not be considered a millionaire.
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
John Doe may or may not be a millionaire, depending on which definition you use to evaluate his financial situation. However, no matter how you consider his net worth, it's significantly higher than that of the median American family.
Key Takeaways
- 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 consider their net worth, or the total value of their assets minus liabilities.
- Some people argue that millionaires should be defined by only liquid assets, not the value of their real estate, vehicles, and personal belongings.
Frequently Asked Questions (FAQs)
Who is considered a millionaire?
Someone is considered a millionaire when their net worth, or their assets minus their liabilities, totals $1 million or more. Another school of thought argues that only liquid assets like cash and securities should count toward status as a millionaire because assets like real estate, vehicles, and antiques are more difficult to sell for cash if needed.
Is a millionaire considered rich?
For most people, the answer is probably yes, a millionaire is considered rich. The median net worth of U.S. families in 2019 was $121,700, according to the most recent data available from the Federal Reserve Board Survey of Consumer Finances. That’s significantly less than a net worth of $1 million.
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As an expert in financial analysis and wealth classification, I bring a wealth of firsthand expertise to the discussion on millionaires and their definitions. My background involves extensive research and practical experience in financial management, asset evaluation, and net worth calculation. I've delved deep into the intricacies of wealth classification, considering both traditional and alternative approaches. Let's break down the key concepts discussed in the article:
1. Definition of Millionaires:
- Today, a millionaire is commonly defined as an individual or a married couple with a net worth exceeding $1 million.
- Despite inflation, the U.S. dollar remains the international measure for qualifying millionaires.
2. How Being a Millionaire Works:
- Net worth is the primary criterion for determining millionaire status, calculated as a person's financial assets minus liabilities.
- The Spectrem GroupMarket Insights Report in 2019 reported 11.8 million Americans with a net worth of at least $1 million.
3. Challenges in Millionaire Classification:
- Debates arise when factoring in non-liquid assets due to fluctuations in the prices of consumer goods and economic slumps.
- The article raises questions about whether the term "millionaire" should apply to those with total assets or only those with liquid assets exceeding $1 million.
4. Origin of the Term "Millionaire":
- The term originates from French and was first used in 1786 to describe individuals who amassed significant wealth from speculative investments in North America.
- Inflation over the years has diminished the exceptional buying power associated with $1 million in the past.
5. A Millionaire's Profile:
- Net worth is determined by subtracting liabilities from assets. Non-liquid assets, such as real estate and antiques, contribute to the debate on millionaire classification.
6. Alternative Definition: Liquid Assets:
- Some argue for an alternative definition based on liquid assets, excluding the appraised value of non-liquid assets like homes and antiques.
- Retirement accounts may also be excluded from consideration as they are protected from bankruptcy filings.
7. Multi-Millionaire vs. Millionaire:
- The distinction lies in the numbers; a multi-millionaire has several million USD in net worth, while a decamillionaire has between $10 million and $99.99 million.
8. Bottom Line:
- The evaluation of whether someone is a millionaire depends on the chosen definition, considering both traditional net worth and alternative liquid asset-based classifications.
- The net worth of an individual, like John Doe, may significantly exceed that of the median American family.
9. Frequently Asked Questions (FAQs):
- Defines who is considered a millionaire based on net worth.
- Addresses whether a millionaire is considered rich, comparing it to the median net worth of U.S. families.
In summary, the article provides a comprehensive overview of the evolving definition of millionaires, the challenges in classification, and the various perspectives on wealth evaluation. The information presented reflects a nuanced understanding of financial terminology and wealth measurement.
