When I was a child “millionaire” was synonymous with “rich man” (and, yes, gender was included in the meaning), and being a millionaire meant having a million dollars. I didn’t think about it at the time, but “having a million dollars” probably meant having a net worth that large, not necessarily having that much in cash or even in liquid assets.
Now Zillow tells me that my modest 2-bedroom house that I paid off the mortgage for several years ago has a market value over $1 million. So I must now be a millionaire. Why don’t I feel rich?
Perhaps the difference is inflation. But what index of inflation should we use? In 1960, the median house price (nationwide) was $12,700, about 2.4× the average salary. So a million dollars would buy about 79 houses. The median home price now is about $230,000, so to be a millionaire by 1960 standards, I’d need to have about $18 million. Of course, not everything is as expensive as housing, and using the consumer price index for inflation puts $1m 1960 dollars at about $8m today. OK, I don’t have that much money, even if you add all my retirement savings and my son’s college fund. So, I’m not as rich as a 1960 millionaire.
Granted, I live in one of the most expensive places to buy houses in the country in terms of median house price/median income. The median house price is approximately $755,000 and the median household income is $63,000–87,000 (depending whose statistics you believe) making the ratio 8.7–12 years income to buy a house. Rents are not quite as bad: the price-to-rent ratio is about 25 (that is, the price of a house is about 25 times the annual rent for the house), so people are not buying houses as rental income investments. In this town, a million-dollar house is a 2-bedroom house in a good neighborhood, not a McMansion.
Of course, being “rich” is always a relative term—it is how well off you are compared to others you are aware of. According to various distribution plots I’ve seen of US household income, our household income has been hovering recently at about the 80–85%ile. That sounds to me like “upper middle class” or “comfortable”, not rich.
However, because I have paid off my mortgage and my house has appreciated so much, together with the amount I’ve saved for retirement, I’m probably in the top 1–2%ile of net worth for households in the US (I’m not really sure of that, because it is so hard to get consistent information about the wealth distribution in the US).
Of course, those retirement savings and my son’s college fund have come by being very frugal—I’ve never owned a car, I don’t take vacations most years, I buy a new bike about once every 15 years, I get a new computer about every 4 years, many of my clothes come from the thrift stores or garage sales, most of my books are used paperbacks, we don’t turn the heat on until the temperature in the house drops below 60°F, most of our furniture was bought cheaply 25–30 years ago, we only eat meat once or twice a week, and so forth. By one definition of “middle-class”—the one based on consumption rather than income, I’m solidly middle class, and only getting to that level because my wife and I eat out once a week.
Wait, that’s not quite right—we’re paying full-freight for my son’s college tuition and housing, and that combined with even very frugal living makes our spending more than the middle fifth of the population. College has gotten very expensive even at state schools, now that the state pays almost none of the cost.
So perhaps the reason I don’t feel rich is that I’m still living much the way I did when I was grad student—even though my retirement savings are now large enough that I could probably retire this year and still have enough money to last the rest of my life (unless medical insurance and medical expenses eat it all up—apparently a very common scenario these days).