Consumer income is crucial for the functioning of our consumer-based economy. In this lesson, you’ll learn what consumer income is, examine some related concepts, and see some relevant statistics.
Consumer income is the money that a consumer earns from either work or investment, such as dividends distributed by companies to its shareholders and the gain realized on the sale of an asset, such as a house. When you combine these income sources, it’s often referred to as aggregate income. However, life is never that easy, so let’s take a closer look at consumer income.
Just because you make money, doesn’t mean you are actually free to use it all. After-tax income is the income that a consumer has left after paying taxes. Disposable income is the income that is left after the consumer has made any mandatory payments, such as payment of debts and other legal obligations, such as child support. Disposable income is what businesses hope consumers will spend on their products and services.
Let’s take a look at some data from the U.S. Census Bureau regarding consumer income. Specifically, we’ll be looking at median household income, but let’s make sure we understand the relevant terms so we can better understand what the data means.
A median is the numerical value in statistics that separates the top half from the bottom half. For example, in the numerical series 1, 2, 3, 4, 5, 6,7, the median is 4. Median household income is a measure of income produced by all members of a particular household that are over a certain age, such as a husband, wife, and a college kid.
Income in the Census Bureau’s calculation includes wages, salaries, commissions, bonuses, tips, self-employment income, interest income, dividends, rents, royalties, regular payments from a trust fund, social security benefits, and retirement benefits, along with some miscellaneous categories we will not bore you with.
Now that we have defined our key terms, let’s get to the data reported by the Census Bureau:
|Year||Median Household Income|
So, what does this data mean to consumers and businesses? You can see the effect of the Great Recession on median household income. Income declined from 2008, the start of the Great Recession, until 2011 and has yet to reach its 2008 level. This means that consumers had less money to spend on goods and services in 2009, 2010, and 2011, than they had to spend in 2008. Consequently, many business made fewer sales during this period, which affects their profitability, ability to grow, and ability employ more people.
Consumer income is basically an increase in consumer wealth from either work or investments. After-tax income is what’s left after taxes are taken from the income, and disposable income is what’s left for consumers to spend after other mandatory expenses have been paid. Businesses compete for those discretionary dollars. Consumer income is studied and reported by the United States Census Bureau. Its data suggests that there has been a general decline in median household income up until recently where the trend has reversed a bit.
Consumer Income Overview
|Consumer income||the money that a consumer earns from either work or investment and the gain realized on the sale of an asset|
|After-tax income||the income that a consumer has left after paying taxes|
|Disposable income||the income that is left after the consumer has made any mandatory payments on debts and other legal obligations|
|Median||the numerical value in statistics that separates the top half from the bottom half|
|Median household income||a measure of income produced by all members of a particular household that are over a certain age|
Memorize the lesson, then do your best to:
- Interpret the definition of consumer income
- Contrast after-tax and disposable income
- Recount household income data as reported by the U.S. Census Bureau
- Determine how to find median household income