The amount of goods that £1 million pounds could buy you two decades ago would now cost over £2.6m by cause of the iconic sum’s worth being eroded away by inflation, as outlined in a recent report by First Direct.
From Chelsea to Hounslow
In 1992, a house in Chelsea or Kensington retailed at around £345,920. Properties in this area now sell for an average price of £1,362,930 marking a rise of over £1 million in just 20 years. Current London house prices would force consumers with budgets under £350,000 to change their buying expectations to areas such as Hounslow where the average property price is around £347,007.
The First Direct report entitled ‘The Millionaire’s Lifestyle’ compared the ‘basket of goods’ that £1m could buy you in 1992 with the goods it could buy you today.
Two decades ago for one million pounds consumers could treat themselves to a Chelsea home, a Rolls Royce Phantom, a seagoing yacht, two holiday homes - a villa in Tuscany and a house in Cornwall, a month-long cruise around Caribbean, two luxury watches, a 3.5 carat diamond necklace and still have change to spare. If you wanted to replicate the same basket of goods today, it would cost you £2,619,720 - an increase of 163%.
With today’s prices, £1m would buy you a house in Hounslow, an Aston Martin, a sea cruiser, a Cornwall holiday home (but no villa in Tuscany), a couple of weeks in Europe, two basic model watches and a 0.5 carat diamond necklace. The inflationary effect has therefore downgraded the lifestyle one could lead with £1m from ‘extravagant’ to ‘affluent’.
The goods that you can buy with a million pounds are not the only factor that has been changed by the effect of inflation, people’s perceptions towards the amount have also shifted. In 2002, £1m was regarded as a vast and ‘iconic’ sum of money by 94% of people. In just ten years, that figure has seen a drop of over a fifth (23%) as now 71% are wowed by the iconicity of the million.
Of those who do not believe £1 million to be a large amount of money, 44% would only consider an amount large if it was over £5 million and 15% if the amount was £10 million or above. Similar findings were highlighted by people’s attitudes to lottery wins with 20% of respondents stating that a lottery win would only be considered large if it was over £1m.
£1,000 is viewed even more dimly in people’s eyes with just 19% describing it as a ‘substantial sum’ for a inheritance sum and 11% for a lottery win.
Bruno Genovese, Head of Savings at First Direct said:
“Over the past twenty years, the things that a million pounds can buy have become increasingly modest and our view of a million pounds as a sum of money has started to change - it is still seen as a significant amount of money by most people but not by as many as it once was. Inflation and the fact a new millionaire is created almost every week with the National Lottery means some people now have a higher expectation of what constitutes a large sum of money.
"However, most people can't rely on a lottery win for their financial planning and, as the things they hope to buy increase in price, their best option lies in building up a savings pot. Even if it doesn't make you an instant millionaire, it gives you financial stability, helps you to afford the things you want and, over time, might just help to pay for that sports car."
Based on cumulative earnings, the average UK worker will have earned £1m by the time they reach 56 years old.