How much does each person make?

The amount of money each person makes in a country or area is called its “income per person.” It is used to determine the average income per person in a particular place and to judge people’s standard of living and quality of life. Find a country’s per capita income and divide its national income by the number of people living there.

How to Figure Out Income Per Capita

According to per capita income, every man, woman, child, and even newborn baby is a part of the population. In contrast, household income and family income are more common ways to measure how prosperous an area is. For example, household income counts all people living under one roof as a household, and family income counts as a family—anyone living under the same roof who is related by birth, marriage, or adoption.

Income Per Capita in the U.S.

That’s how often the U.S. Census Bureau checks to see how much income each person makes, and every September, they update their figures. In the census, people aged 15 and up are asked to report their total income from the previous year. The median figure is then found. Earned income, such as wages, salaries, income from self-employment, interest income, dividends, and income from estates and trusts, are all counted in the census. So are government transfers, such as Social Security, public aid, welfare, survivor, and disability benefits. This doesn’t include health insurance paid for by the workplace, loans, insurance payments, gifts, food stamps, public housing, capital gains, medical care, or tax refunds.

The 2020 Census found that the national average annual income per person was $39,052. As of 2020, the median family income in the United States was $67,521. This means that the per capita income is less than that.23

Each measure has its benefits. When you want to look at a lot of people, like the more than 330 million people who live in the United States, per capita income can help. 4 When looking at the amount of income inequality and poverty in a particular area, the median household income can help. This is because it removes the highest and lowest incomes, which could throw off the whole data set.

How to Use Income Per Capita

One of the most popular ways to use per capita income is to determine how rich or poor an area is. One way the U.S. Bureau of Economic Analysis (BEA) ranks the wealthiest counties in the country is by this. Another way is by median household income.5

The per capita income can also help you determine how affordable a place is. For example, it can be used with information about home prices to help figure out if ordinary homes are too expensive for the average family. The average home price per capita is very high in places like Manhattan and San Francisco, which are very expensive.

When a business wants to open a store in a town or area, it can also look at the per capita income. A town with a high per capita income might have a better chance of making money from selling their goods than a town with a low per capita income because the people there have more money to spend.

Limitations of Income Per Capita

Per-head income is a common way to measure things, but it has some flaws.

Levels of Living

It’s not always an excellent way to show the standard of living because per capita income takes the total income of a community and divides it by the total number of people. To put it another way, the statistics might not consider differences in income.

Let’s say that 50 people in a town make $500,000 a year, and 1,000 people make $25,000. We find the total income by adding up the income per person ($500,000 * 50) and the income per household ($1,000 * $25,000. This gives us $50,000,000. If we split $50,000,000 by 1,050 (the town’s total population), we get $47,619 as the income per person.

But the per-head income doesn’t show how people in the town live. Imagine if towns got government or public aid based on how much money each person made. In our case, the town might not get the help it needs, like food and housing aid, if the income limit for aid was $47,000 or less.

Price rises

Inflation is the rate at which prices rise over time. Per head, income doesn’t show inflation. If, say, a country’s per capita income went from $50,000 a year to $55,000 the following year, that would be a 10% rise in the yearly income for the people living there. That being said, if inflation were 4% during that time, income would only go up by 6%. Inflation makes it harder for people to buy things and stops pay gains from being functional. So, per capita income can give a false picture of how much money a person makes.

Comparisons between countries

When comparing countries, the differences in cost of living may not be accurate because exchange rates are not considered. Some people who don’t like per capita income say that purchasing power parity (PPP), which helps to cancel out the difference in exchange rates between countries, is a proper way to measure income. In some countries, people trade and do other things that don’t involve money, which isn’t considered when figuring out per capita income.

Money and Savings

The amount of money each person makes is not included in their per capita salary. For instance, a wealthy person may not make much money each year because they don’t work but use their savings to maintain a good standard of living. The rich person would be seen as a low-income earner by the per capita measure.

Little Kids

Per capita counts children as part of the population, but kids don’t make money. It’s unfair for countries with many children to get the same result as countries with few children because more people are splitting their income.

Economic Well-Being

The well-being of the people isn’t always shown by per capita income. For instance, the number of hours worked. And the amount of education and health benefits. These are not considered when figuring out per capita income. This means that the community’s general well-being might not be shown correctly.

It’s important to remember that per capita income is just one way to measure income. Other ways to measure income include the median income. Also, income by area and the percentage of people who live in poverty.

Conclusion

• The amount each person makes in a country or area is called its “per capita income.”
• People of all ages are counted in the per capita income, not working-age people.
• One problem with per capita income as a measure is that it is considered inflation. Then, income inequality, poverty, wealth, or account.