Dictionary
Debitoor's accounting dictionary
Household income

Household income - What is household income?

Household income (HHI) refers to the total amount of gross income generated by the individuals living within one particular household

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The amount of household income includes any income brought in by individuals over the age of 15 living under the same roof. The combined total before tax is the household income. It’s not necessary that these individuals be related, the HHI refers to all income.

In the context of HHI, a household can consist of any number of people, including one person living on their own.

What is included in determining household income

Household income covers not only salary or wages from a job. It covers any and all income to individuals in the household, such as:

Interest earned on investments Tips earned Payment for freelance work Income from rental properties Dividends Social security payments Pension payments

Essentially, any incoming cash flow should be included in the calculations for determining the current household income.

Why household income is important

You’ve likely heard of household income in an economic context. Median HHI is used to provide measurements for a particular city, region, country, etc. The numbers gathered by determining household income help show how the given area is faring economically and allow it to be compared to others. It’s a strong indication of the wealth of the area being examined.

Household income can also be used by banks to help make decisions about whether to issue a loan.

For example: If an individual has an income of £27,000 but is carrying a large amount of debt and applies for a loan, they might be rejected. However, if someone in their household has an income of £58,000 and no debt, their income combined with the income of the first individual would bring the household income up significantly to £85,000 and perhaps qualify them to take out a loan or a mortgage.

How household income differs from per capita income and family income

Where household income covers all gross income under one household, per capita income refers to only the average income earned by an individual. This is usually averaged out to the income earned by individuals within a given area.

Family income refers to the income within households that consist of two or more individuals. In this calculation, these people must be related by birth, marriage, or through official adoption.