What is 'Household Income'
Household income is the combined gross income of all the members of a household who are 15 years or older. Individuals do not have to be related in any way to be considered members of the same household. Household income is an important risk measure used by lenders for underwriting loans, as well as a useful economic indicator of an area's standard of living.
BREAKING DOWN 'Household Income'Median household income is a frequently reported economic statistic. Because many households consist of a single person, median household income is usually less than median family income, another frequently reported economic statistic, because a household consisting of a single person is not included in the average family income calculation. Looking at household income statistics is instructive when comparing affluence and living standards between different cities, states or countries.
Difference Between Household Income, Family Income and Per Capita Income
Household income is one of three commonly cited measures of individual wealth. The other two, family income and per capita income, take slightly different approaches to measuring how well people in a given area are doing financially.
Household income considers the incomes of all persons 15 years or older occupying the same housing unit, regardless if they are related. A single person occupying a dwelling by himself is also considered a household. Family income, by contrast, considers only households occupied by two or more people related by birth, marriage or adoption. Per capita income measures the average income earned by each person in a given area. Therefore, two income earners in the same family or household are counted separately when measuring per capita income.
Usefulness of Household Income
Economists use household income to draw a host of conclusions about the economic health of a given area or population. For example, comparing median household incomes across countries of the world provides a glimpse as to where citizens enjoy the highest quality of life. As of 2013, Luxembourg had the world's highest median household income at $52,493, while the United States came in sixth at $43,585.
Comparing an area's household incomes to its real estate prices indicates whether the market might be getting overheated. Household finance experts assert that buyers can afford to pay up to three times their annual incomes for a home. Therefore, the ratio of median household income to median home sales price reveals whether a typical home is out of reach for the typical household. During the 2000s housing bubble, median home prices in many areas of the country, such as Miami and Southern California, were five times higher than the median household income.