Household Income

What Is Household Income?

Household income is generally defined as the combined gross income of all members of a household above a specified age. For some usages of the term, 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 and is a useful economic indicator of an area's standard of living.

Understanding Household Income

Household income generally is defined as the total gross income before taxes, received within a 12-month period by all members of a household above a specified age (the Census Bureau specifies age 15 and older). It includes — but is not limited to — wage, salary, and self-employment earnings; Social Security, pension, and other retirement income; investment income; welfare payments; and income from other sources.

The definition of household income and its components varies depending on the context. The term may be defined in law or regulation, or may be determined by researchers or authors as an amount that includes or excludes specific items of income. Here are some examples:

Example of Household Income

Sam earns $120,000 per annum from his job as a finance professional. His spouse Alex earns $80,000 as an analyst. Together, their family income is $200,000. Sam's nephew Jim also lives with them. Jim earns $40,000 as a salary from his job. Assuming these individuals' earnings are their only income, their total household income, as defined by the Census Bureau, is $240,000

Median vs. Average Household Income

The range of households used to determine median and average household income may differ. In determining median household income in the United States, the Census Bureau counts households with no income in the calculation. However, some other income analyses, particularly ones focusing on various average income statistics, use only positive income amounts.

When median and average amounts of household income are calculated for all U.S. households, the average figure will always exceed the median because of the impact of the small number of U.S. households with exceptionally high incomes.  

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 different approaches to measuring how well people in a given area are doing financially.

Special Consideration

Typically, the per capita gross domestic product of a country should increase along with the median household income. In recent years, a divergence has been seen between these figures in the United States. In turn, this has led to discussions about referencing median household income as a better indicator of economic well-being than GDP.