Per Capita Income VS. Household Income

Question

One assertion I've read quite frequently is that household income is declining in the United States and that wages are not keeping up with inflation. In essence, these articles indicate that we're experiencing lower wages in the United States than in the past. I use income measurements as an assessment of where I stand because a financial adviser suggested this as an effective method and she now lives in a different city; so I've continued it. We used household income, which does appear to be on the decline, though I'm unsure if this measurement takes into consideration that household sizes as far as earners may be smaller.

Now, based on these data (per capita income), U.S. per capita income in 1990 was $19,354 and as of 2012, it's $42,693. Using this measure, it doesn't appear incomes have stagnated (depending on state), and, in fact, relative to the state, some incomes have seen huge increases (look at the figures of North Dakota, which went from being ranked 39 in 1990 to 6 in 2012).

So for those of you who may do comparisons like this just as a measurement of how well your financial situation is, do you find that household income or per capita income is a more accurate picture and why?

Answer 1

Real per capita income is rising because real income from investments have grown.

Real household income is relatively stagnating because although real income is rising, the persons per household is falling.

Real wages & salaries per capita have been stagnating since approximately 2000. The reason for that doesn't seem to be well-agreed upon by all economic schools of thought.

Income from investments is now approximately half of all income and more if unrealized capital gains are included.

The most contributions to the changes in household wealth are from investments & real estate. Savings from wages & salaries are minuscule by comparison.

Answer 2

Even though there are claims that household income is stagnant, or that the average worker's income has not increased (popular meme in the press), as you have observed, the averages have increased, and there is a difference between household and per-capita income. These numbers are reported as averages, combining those who derive the bulk of their income from investments with those who work. It might be more accurate to only consider those who work, and determine their average income for hours worked (also reported average wage per hour and hours worked)? The income numbers, and the inflation numbers are all attempts to measure how the population is doing, and are therefore very political.

Another aspect worth some attention would be to consider the entire income statement. Note that when you look at an income statement, you want to look at and consider both sides, income and expenses. And when you look at the expense side of any household or per-capita budget, you will see some areas that are much better, and some that are worse. And it is also worth considering the value received for the money being spent, and how that has changed over the past 20-30 years. Certainly, our expenses and our lifestyle have changed, as we have shifted our wants and needs.

Consider the changes since 1984 or 1990. Few of us had cellphones, nobody had gps, the internet, smartphones, LCD or LED TV's, Dvd and Blueray did not exist, nor did most of us have email, on-demand movies and tv shows did not exist, nor did we have life-like video games. Consider the cars made in 1984 (Chevy Citation? Ford Tempo?)

Consider our expenses,

• Homes - compare a home built in 1990 to a home built in 1950. Better materials, plumbing, insulation, electrical, vast improvements, higher prices, price collapse, net win (most areas).
• Rent - prices have remained affordable (most areas).
• Cars - competition has produced better, faster, safer cars. Prices are higher, but quality, value, mpg are better, and cars last twice (200K+ miles) as long as 30 years ago, net win.
• Heating - better insulation, smart thermostats, higher rates, net loss.
• Electricity - CFL and LED bulbs, efficient appliances, higher rates, net win.
• Grocery - price increases less than inflation rate, net win.
• Gasoline - better mpg (50%), prices higher (250%) over past 20-30 years, net loss.
• Clothes - competition has reduced prices, win!
• Internet - replacing cable, better freedom/choice, on demand, win!
• Cellphone - replacing landline, smartphones adding value, win!
• Video games - amazing increase in value in the past 10 years, win!
• Netflix, Hulu, Email, Google, Facebook, etc - win!
• TV - 40-50 inch LED TV for under $500, huge win!
• Dvd and Blueray - quality 3x better than Vhs, win!

What are the big budget busters?

• Medical - dramatic increases in costs, huge loss!
• College - large increases in costs, huge loss!
• Rent/Housing prices much higher in LA, SF, NYC, CHI, etc.
• Taxes - increased as percent of income for most, loss!

Note that medical care has improved dramatically over the past 30 years, as has our understanding of nutrition, fitness, and health. People live longer, especially when they avoid deleterious behaviors (smoking, drinking, hazardous chemicals, dangerous activities, etc), and pursue healthly lifestyles. Medical costs can be mitigated by choices.

College costs are also a choice, and many people are questioning the value proposition of expensive schools and degree programs. Alternatives such as online learning, massive online courses are available. But the traditional college experience remains the norm, and will remain expensive.

The increased costs for Rent/Housing in certain expensive areas can be avoided by choice (live somewhere cheaper). And for those with budget challenges, or fixed incomes, these choices can greatly improve the expense situation. This approach can also be applied to Taxes, at least at the state level, as Taxes vary by state (income, sales, and property taxes). There are seven states with no income tax. And one reason that NYC has such high rents is the higher property tax for rental properties.