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.

RELATED TERMS
  1. Head Of Household

    A status held by the person in a household who is running the ...
  2. Breadwinner

    The primary, or sole, income earner in a household. Breadwinners, ...
  3. Income Per Capita

    A measure of the amount of money that is being earned per person ...
  4. Member Of Household Test

    A test that can be administered to a prospective dependent in ...
  5. Per Capita

    A Latin term that translates into "by head," basically meaning ...
  6. Account Aggregation

    A process by which accounts are linked for the purpose of combining ...
Related Articles
  1. Insights

    10 Wealthiest States in the United States

    A review of the 10 richest states in America as ranked by median household income.
  2. Personal Finance

    Household Debt Surpasses $90,000

    Study finds that the average debt in U.S. households is over $90,000.
  3. Taxes

    What Does Filing As Head Of Household Mean For Your Taxes?

    In order to file as head of household, you must meet several requirements. Find out whether being head of household comes with any tax benefits.
  4. Managing Wealth

    Family Finances: Compare Your Family to This Study

    Despite improvements in the economy, a new report from Pew Charitable Trusts finds that household budgets are increasingly stretched thin.
  5. Insights

    The 10 Best Cities for Financial Advisors

    If you're an advisor looking for a promising location to practice, consider the combination of high wealth and low market penetration of these locales.
  6. Financial Advisor

    Household Net Worth For Americans Rose In 2015

    Even as household net worth for American households rose in 2015, it failed to translate into economic growth.
  7. Managing Wealth

    The 10 Most Expensive ZIP Codes in Houston

    You can get a lot more house for your money in Houston – the largest city in Texas and the fourth largest in the U.S. – than you can in New York City.
  8. Managing Wealth

    The 10 Most Expensive ZIP Codes in New Jersey

    Often overshadowed by its cosmopolitan neighbor New York, the Garden State has a number of towns that offer luxury and space to those with deep pockets.
  9. Managing Wealth

    The 10 Most Expensive Zip Codes in California

    California has some of the priciest ZIP codes in the U.S. And these are the priciest in California.
  10. Managing Wealth

    The 10 Most Expensive ZIP Codes in Chicago

    Chicago is home to some of the most glamorous neighborhoods in the United States. Here are the 10 most expensive ZIP codes in the Windy City.
RELATED FAQS
  1. What is the difference between disposable income and discretionary income?

    Learn about disposable and discretionary income, including why these measures are important, the main difference between ... Read Answer >>
  2. When do I need to fill out an IRS Schedule H form?

    Learn what factors would require you to file a Schedule H Form with the IRS. Read Answer >>
  3. I get multiple mailings to my house from companies that my spouse, children and I ...

    It's not uncommon for there to be more than one investment account holder in one household. If multiple members of your household ... Read Answer >>
  4. Which US cities have the highest number of high-income households?

    Learn which U.S. cities have the highest number of high-income households and why they were able to attract such a large ... Read Answer >>
  5. How does discretionary income relate to autonomous consumption?

    Learn what differentiates discretionary income from autonomous consumption, how the two relate to each other and what place ... Read Answer >>
Hot Definitions
  1. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  2. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  3. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  4. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  5. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  6. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
Trading Center