Household Income refers to the total income earned by all family members living in a single house. They must be fifteen years or older for their income to count. An interesting point is that the individuals living together do not have to be related at all to be considered a part of the overall household. This is a crucial measurement of risk that many lenders employ for underwriting loans. It also proves to be a helpful economic metric for grasping the standard of living in a given area.
The statistic of median household incomes is a commonly cited and released economic statistic within the United States. It can be misleading though, since a great number of American households are actually made up of only one person. This is why the statistic consistently plays second fiddle to median family income, which is similarly often reported as a leading economic indicator. Households which only consist of one person are not factored in to the average family income formula. This is why considering household income statistics can be constructive when analysts are attempting to do comparative measurements of living standards and true wealth from one state, city, county, or even country and the next.
Yet this household income remains among the three most frequently cited metrics for individual wealth in America today. The remaining two are per capita income and family income. These use a bit different means of approaching the standard of living for people in a certain jurisdiction and determining their overall financial wellbeing.
In fact, household income takes into account all incomes of any individual within the home who is at least fifteen years old. The weakness of the measurement lies in the fact that it similarly considers a single person dwelling alone to be an entire household as much as it would a family of seven. With the competing metric of family income, only those households which at least two people who are related via marriage, birth, or adoption are considered to be a true household.
Contrast this with per capita income, the third related measurement of individual and household wealth and standards of living. With per capita income, the measurement is the most true and accurate, since it considers only every individual person who dwells in a prescribed region, city, nation, or other area along and as themself. This means that two individual income earners within the same household or even family will always be counted distinctively under the formula for deriving per capita income.
Modern-day economists and analysts like to deploy household income all the same. They prefer it for drawing up a raft of conclusions regarding the overall economic health of a certain population group or regional area. As an example, economists will frequently compare the median household incomes from one nation of the world to many others.
This delivers a big picture as to what quality of life the citizens of various countries enjoy as compared to their compatriots living in other nations. It helps them to determine which country’s citizens boast the best quality of life. In 2013, Luxembourg enjoyed the highest median household income in the globe at a staggering $52,493. Surprisingly, the United States came in at only sixth with $43,585.
Another practical application of the household income figure pertains to the regional prices for real estate. This can tell analysts much about whether or not the housing market could be overheating. Experts in household finance continuously maintain their claim that homebuyers can only afford to pay as much as three times their yearly incomes on a home.
This means that the ratio of median household income as measured against median home sales pricing will tell the tale on if a given home price is too expensive for the typical area household’s income. In the housing bubble of the first half of the 2000s decade, the median home prices across many regions of the nation, including Southern California and Miami in South Florida especially, proved to be as much as five times higher than the local area median household income, making them unaffordable for the average household to all intents and purposes.