The median household income refers to income earned by homes in a particular area where the distribution of the household incomes is divided into two halves. One of the halves will fall below the median household income while the other will fall above the same.
It is determined by the distribution of household incomes for different homes. It is used in place of the mean or average household income as it gives a more vivid picture of the economic status of the area the survey is being carried out.
Median Household Income Calculation
A household will make up a housing unit, and hence, everyone living under that one unit. It means that income earned by everyone living in the housing unit will qualify to be included in determining the median household income.
Information regarding different household incomes from different housing units is collected, and distribution is determined depending on the level of income in those households. A median household income is determined as a result.
The income is distributed from the lowest to the highest in a normal distribution curve to come up with the central or median household income that represents all other incomes in the survey area. Even people who are not related such as roommates are included when determining the median household income. However, for one to be included as a contributor of the household income, they have to be at least 15 years, according to the Census Bureau.
The Census Bureau carries out a survey in a particular area, to determine the economic status, using the median household income. It is a figure that provides a vivid estimate of the earning potential of people living in a particular region.
They can decide to take on a sample of about 20 homes together with their respective monthly household incomes. From there, the household incomes are ranked to determine the median household income which represents all the households in the region.
It is also used to compute for the affordability of housing. This is where the housing affordability index comes in. It shows the relationship between the median cost of a home and the median income. When the index is high, it means that people in that area can afford to own homes.
It may be due to either the homes are affordable, or their incomes are high. Alternatively, if the index is low, it means that affordability of housing for those households is low, and hence, they cannot afford to own homes.
Apart from knowing the economic status of a region based on the median household income, it can help uplift the lives of people or households in that area. If the affordability to owning a home is not up to standard, they can introduce affordable housing programs in the area to help low-income households afford home ownership.
It provides a basis through which the economic status of low-income households can be uplifted without affecting their income level.