Loading the player...

What is 'Income Per Capita'

Income per capita is a measure of the amount of money earned per person in a certain area. It can apply to the average per-person income for a city, region or country, and is used as a means of evaluating the living conditions and quality of life in different areas. It can be calculated for a country by dividing the country's national income by its population.

BREAKING DOWN 'Income Per Capita'

Income per capita counts each man, woman and child, even newborn babies, as a member of the population. This stands in contrast to other common measurements of an area's prosperity, such as household income, which counts all people residing under one roof as a household, and family income, which counts as a family those related by birth, marriage or adoption who live under the same roof.

Uses of Income Per Capita

Perhaps the most common use of income per capita is to ascertain an area's wealth or lack of wealth. For example, income per capita is one metric the U.S. Bureau of Economic Analysis (BEA) uses to rank the wealthiest counties in the United States, the other being median household income.

The figure is also useful in assessing an area's affordability. It can be used in conjunction with data on real estate prices, for instance, to help determine if average homes are out of reach for the average family. Notoriously expensive areas such as Manhattan and San Francisco maintain extremely high ratios of average home price to income per capita.

Limitations of Income Per Capita

Because income per capita is the overall income of a population divided by the number of people included in the population, the figure does not always give an accurate representation of the quality of life due to the function's inability to account for skewed data. Specifically, the metric does not account for the effects of income inequality. For instance, if there is an area where 50 people are making $1 million per year and 1,000 people are making $100 per year, the per capita income is $47,714, but that does not give a true picture of the living conditions of the entire population.

For this reason, to obtain an accurate picture of the quality of life in a given area, it is important to consider income per capita in conjunction with other income measurements, such as the median income and the percentage of residents living below the poverty line.

RELATED TERMS
  1. Per Capita

    A Latin term that translates into "by head," basically meaning ...
  2. Per Capita Gross Domestic Product

    Per capita GDP is a measure of the total output of a country ...
  3. Household Income

    The combined gross income of all the members of a household who ...
  4. Developed Economy

    While there is no one, set definition of a developed economy ...
  5. Standard Of Living

    The level of wealth, comfort, material goods and necessities ...
  6. Net Investment Income

    Income received from investment assets (before taxes) such as ...
Related Articles
  1. Insights

    Explaining Income Per Capita

    Income per capita measures the amount of money that’s earned per person in a defined area.
  2. Investing

    Understanding Per Capita

    Per capita is a Latin term that means “by head.”
  3. Taxes

    5 States With Low Taxes and High Income

    When it comes to saving for retirement, living in one of these five states with low taxes and high income can better position you to build your nest egg.
  4. Investing

    3 Emerging Markets With Bright Prospects

    Learn about emerging and developed Asian markets, their economic machines, and which key factors contribute to real and per capita GDP growth.
  5. Retirement

    The Least Expensive States to Retire In

    Retirement time, and the livin' is easy in these locales.
  6. Insights

    Healthiest And Safest European Economies

    Economic indicators are to economists what symptoms are to doctors: signs of the relative well-being of the patient.
  7. Insights

    Standard Of Living Vs. Quality Of Life

    What is the difference between a standard of living and quality of life? Find out in this breakdown.
  8. Personal Finance

    All About Income

    Income is the money you or a business earns by providing goods or services, or through investments.
  9. Insights

    5 States with the Highest GDP Per Capita

    Learn about the top five states ranked by their real gross domestic product (GDP) per capita as of 2014: Alaska, North Dakota, New York, Connecticut and Wyoming.
  10. Investing

    An Investor's Guide to the European Economy

    Below is a brief overview of the countries which make up the Eurozone and how their economy and markets have been performing in order to put things in perspective for an investor.
RELATED FAQS
  1. How does gross domestic product (GDP) affect standard of living?

    Find out how gross domestic product is used to measure standard of living. Find out which alternative metrics rely on GDP ... Read Answer >>
  2. Is China a developed country?

    Understand why China, despite having the world's second-largest economy and third-largest military, is not yet classified ... Read Answer >>
  3. What country has the wealthiest overall population?

    Find out which country has the wealthiest overall population, based on per capita income. Discover how this wealth was created ... Read Answer >>
  4. Is Brazil a developed country?

    Understand why Brazil's low per capita gross domestic product; high birth and death rates; and subpar living conditions classify ... Read Answer >>
  5. Is Mexico a developed country?

    Understand what makes a country a developed country, and learn why Mexico is getting closer to developed status but is not ... Read Answer >>
  6. What is the difference between disposable and discretionary income?

    See how disposable income and discretionary income are different, with an example to demonstrate why discretionary income ... Read Answer >>
Hot Definitions
  1. 403(b) Plan

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

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  3. 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 ...
  4. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  5. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
  6. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
Trading Center