Interpreting Income Distribution
Do you think you know what the median household income in the US is? Among researchers and marketers who need to know this, it’s pretty common knowledge that the median household income is around $50,000 per year. This is a nice, easily remembered value since we often create cut-points at $25,000, $50,000, $75,000 and so on.
However, is that $50K median household income really the number that you need to remember for your demographic representation needs?
This question originally came to us from one of our VIP members using our Census Demographics Drill-down Utility. When you look at the income distribution table, you’ll see that only about 40% have an income of less than $50,000.
Why is that if we all know that the median household income is $50,000? Shouldn’t we see 50% in that income range?
Median household income counts the households in most reports, but our demographic tool counts individuals. So you would need to interpret the percentages as “the percent of individuals that live in a household with combined income of less than $50,000”, for example.
The reason that there are fewer people living in less-than-$50k-earning-households is that there is a correlation between household size and household income. See here, or more conveniently, here, or even more conveniently, this table:
That means that if you are conducting a survey among individuals or selecting demographic targets for the upper 50%, then you should not assume the median household income of around $50,000 that is most commonly reported.
If you’re targeting individuals and looking at household income, the median household income among individuals is actually around $60,000 per year.
Dale Gilliam is the CEO of Troubadour Research & Consulting, a marketing research and analytics firm committed to delivering true understanding of the story behind the data. Dale can be found on Twitter @data_modeler and LinkedIn.