There are Almost 1 Million Accidental Millionaires in the US

Earlier this week I talked about how millionaires are much more common than I would have thought they are. But then I saw this piece from Yahoo that talks about accidental millionaires (see a bit down the page) -- people who are millionaires on paper but not because they saved and invested but because their house has appreciated under them to make them more wealthy. The article is an interview with personal finance author and radio host Jennifer Openshaw and here's what she has to say on the subject:

Many Americans have been trapped into thinking they're wealthy because of all the equity in their homes. Well, chances are you're not even close to being rich because that money won't do you a bit of good if you're living in the house. You're actually what I call an "Accidental Millionaire."

I guess this is why some people exclude the value of a primary residence when they calculate their net worth. Personally, I count it in my net worth, but I also realize that the amount invested in my house is very illiquid and not something I can count on to help fund my retirement (unless I use a reverse mortgage or downsize in retirement.)

So, how many accidental millionaires are there?

Well, consider this:

• SmartMoney says, "One in 12 U.S. households already has at least $1 million tucked away in home equity and other assets." (June issue, page 49) In 2006, there were approximately 110 million US households. This means the number of U.S. millionaire households including the value of the primary residence is 9.17 million.

• MSNBC says there are 8.3 million households with at least $1 million in investable assets — excluding the family home.

• Given these two numbers, there are 870,000 accidental millionaire households.

Looked at another way, 9.5% of SmartMoney's "millionaires" are accidental millionaires.

Comments

[Minimum Wage]

Hey, that's nothing to laugh at. Those of us who can't buy a home are moping as our rents keep going up and our net worth stagnates near zero.

[Skott]

MW- I think you should cancel your internet service and put the money toward a savings plan. :)

[Lord]

If your house is paid off, not counting it can be misleading because you don't have to make payments. Then again, are they capitalizing pensions? Wealth can be owned or come as an income stream. Counting it can be subject to interpretation.

[Minimum Wage]

I got my internet service when I canceled my daily newspaper - it actually saved me a little money, and I got a lot more value (news, blogs, etc) in the process. Ain't going back to the newspaper!

[Patrick]

I think Jennifer Openshaw made a good point when she wrote: "Many Americans have been trapped into thinking they're wealthy."

People get into financial trouble when they start taking out HELOCs against their increased equity, not on whether or not they have the money to pay the higher bills.

A better way to guage wealth is to look at a combination of investible assets, and incomes vs. outflows. It's no good to be a millionaire on paper if you have to take aout a HELOC to pay credit cards and other bills.

[Patrick]

I think Jennifer Openshaw made a good point when she wrote: "Many Americans have been trapped into thinking they're wealthy."

People get into financial trouble when they start taking out HELOCs against their increased equity, not on whether or not they have the money to pay the higher bills.

A better way to guage wealth is to look at a combination of investible assets, and incomes vs. outflows. It's no good to be a millionaire on paper if you have to take aout a HELOC to pay credit cards and other bills.

[Lazy Man and Money]

Where I live in northern California, the median home sells for $870K. It's not too hard to be supplement that to be a millionaire. Should that not be counted? I don't think so. I think it's an important asset that could be sold (even if for "only" $700K) and would be a nice nest egg if taken to a place like Texas or North Carolina with lower costs of living.

[thc]

In my practice I talk with clients about "capital at work" rather than net worth. It's essentially the same as "investable net worth" but I think "capital at work" is more descriptive.

Personally, after seven years in this mortgage and a little help from appreciation our home is worth around $1 mm and our equity in it is about $600k. So I completely understand the psychological wealth effect created by real estate appreciation. But it's a mistake to let it influence saving and spending habits.

[Bob]

I think this definitely cuts both ways. A million dollars in equity my be illiquid, but there are MANY places in this country where a nice home can still be purchased well below that level. I live in Colorado and most places outside of the mountain resort towns have very nice homes in the $250K - $350K range. If you can sell a home, relocate to an area with lower home prices, and net $500K in tax free captial gains, that's quite a windfall.