What is Household Income?

Household income is the combined gross income of all 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.

Understanding 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. At an individual level, household income is adjustable gross income, meaning that it is the income left after tax. The Census Bureau reported that the U.S. median household income in 2017 was $61,372.

Key Takeaways

  • Household income refers to the combined gross income of all members of a household, defined as a group of people living together, who are 15 years or older.
  • It is used to determine the economic health of an area or to compare living conditions between geographic regions.
  • Generally, it is less than the median family income.

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 people ages 15 years or older occupying the same housing unit, regardless of relation. 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 various countries provides a glimpse as to where citizens enjoy the highest quality of life. As of 2016, the median household income in the United States was $59,039, according to the U.S. Census Bureau. Norway and Luxembourg have median household incomes of $51,489 and $52,493, respectively, according to a 2013 Gallup World Poll. These global numbers may even be higher given that the current data is five years old. 

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 parts of Southern California, were five times higher than the median household income.

Typically the gross domestic product per capita of a country should increase along with the median household income. In recent times, a divergence has been seen between both figures in the United States. In turn, this has led to discussions about replacing GDP with median household income as an economic indicator.

Example of Household Income

Pierre earns $120,000 per annum from his job as a finance professional. His wife Catherine earns $80,000 as an analyst. Together, their family income is $200,000. Pierre's nephew Jean also lives with them. He earns $40,000 as salary from his job, bringing their total household income to $240,000.