Over the past two decades, inflation has downgraded the lifestyle that £1 million can buy from extravagant to affluent and people's perception of the sum's value has changed significantly, according to new research from first direct.

In 1992, £1 million could buy a basket of goods including the average house in Kensington and Chelsea, a Rolls Royce, a seagoing luxury yacht, and holiday homes in Tuscany and Cornwall whereas nowadays, it can buy the average house in Hounslow, an Aston Martin and a river cruiser (see Table 1).

Today, the cost of the 1992 basket has shot up by 163% to £2,619,720. Over the same period, the average gross annual salary has increased by 100% from £15,850 in 1992 to £31,606 today.

Table 1: The Millionaire Lifestyle in 1992 and 2012

£1 million is losing iconic status

A decade ago, almost everyone (94%) saw £1 million as a large or iconic sum of money, compared with 71% now, a significant fall of 23%. This is mirrored by 20% of people saying that a win on the National Lottery would only be large if it was over £1 million.

Of the 29% of people who don't see £1 million as a large sum of money, almost half (44%) only view sums above £5 million as large and 15% only view a sum as large if it is over £10 million.

However, when looking at the more realistic financial situations that most people face, expectations are much less lofty. In the case of a retirement lump sum, 92% said they would be happy with an amount lower than £1 million, as would 98% of people for buying a house or receiving an inheritance.

People have the most modest expectations of a work related bonus, as 65% would see less than £1,000 as a substantial sum of money to receive from this source, compared with just 19% who said this of an inheritance and 11% who say this of a lottery win.

Bruno Genovese, Head of Savings at first direct commented:

"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."