Personal Finance

Household income

What is household income?

Household income is generally defined as the total income of all members of a household above a certain age. For some uses of the term, individuals do not have to be related in any way to be considered members of the same family. Household income is an important risk measure used by lenders to underwrite loans, and it is also a useful economic indicator of the standard of living in an area.

Understanding household income

Household income is generally defined as the total pre-tax income received over a 12-month period by all household members over a specified age (15 years and older specified by the Census Bureau). It includes, but is not limited to, wages, salaries, and self-employment income; Social Security, pension, and other retirement income; investment income; welfare payments; and other sources of income.

Definitions of household income and its components vary by context. The term may be defined in law or regulation, or may be determined by a researcher or author as an amount that includes or excludes specific income items. Here are some examples:

  • When calculating household income, the U.S. Census Bureau includes all pretax income cash Income of all individuals aged 15 or older belonging to a household, whether or not they are related. The Census Bureau reports that the median U.S. household income in 2019 was $68,703.
  • Some programs and studies include the value of non-cash benefits or receipts (such as food stamps) when measuring household income. For example, the Congressional Budget Office (CBO) adds non-cash receipts, particularly in-kind government benefits and services, to cash receipts when estimating gross receipts.
  • In some cases – such as different government programs and extensive economic surveys and research – household members may differ, or the analysis may focus on individuals. For example, in determining who receives subsidies to help pay for health insurance through the Affordable Care Act, the definition of household income includes “you, your spouse (if you are married), and every individuals, including those who do not need insurance,” according to HealthCare,gov. Additionally, household income is calculated by deducting certain fees or allowances from gross income when determining eligibility for certain public benefit programs.

key takeaways

  • Household income, as defined by the U.S. Census Bureau, is the total cash income of all members of a household, defined as a group of people 15 or older who live together.
  • It is used to assess the economic health of an area or to compare living conditions between geographic areas.
  • The definition of household income depends on the context: who belongs to a household and which items are included in the income, and may vary across studies and across government programs.

Household Income Example

Sam earns $120,000 a year as a financial professional. His spouse, Alex, earns $80,000 as an analyst. Their combined household income is $200,000. Sam’s nephew Jim also lives with them. Jim’s job earns $40,000.Assuming these people’s income is their only income, their total household income, as defined by the Census Bureau, is $240,000

Median vs. Average Household Income

The range of households used to determine median and average household income may vary. When determining the median U.S. household income, the Census Bureau counts households with no income in its calculations. However, some other income analyses, especially those that focus on various average income statistics, use only positive income amounts.

When calculating the median and average household income for all U.S. households, the average will always exceed the median due to the effect of unusually high incomes for a few U.S. households.

Difference Between Household Income, Household Income, and Per Capita Income

Household income is one of three commonly used measures of personal wealth. The other two, household income and per capita income, use different methods to measure the financial well-being of people in a given area.

  • Household income, as defined by the U.S. Census Bureau, includes the total cash income of all persons age 15 or older living in the same housing unit, regardless of how related they are, if any. A person living alone in a dwelling is also considered a family.
  • Household income only considers households where two or more persons are related by birth, marriage or adoption.
  • Income per capita measures the income of each person in a given area. Therefore, when measuring per capita income, the two income earners of the same family or the same household are calculated separately.

special consideration

Generally, a country’s GDP per capita should increase with the median household income. In recent years, there has been a divergence between these numbers in the United States. This, in turn, has sparked discussions about using median household income as a better indicator of economic well-being than GDP.

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