This month, the U.S. Census Bureau’s American housing survey will begin. As part of this survey, census workers will be collecting demographic data including household income.
Household income is a staple in marketing for selecting areas where people are most likely to purchase products or services as well as other uses. For example, if you own a luxury car dealership, you probably want your dealership located in or near an area with a high household income.
Although household income is a quick way to assess an area, it doesn’t really tell the whole story. Consumer discretionary income can vary significantly based on a wide variety of factors that are unmeasured by the simple household income measurement.
Consider the following examples:
Example 1: Number of people in the household factors greatly in the amount of discretionary income
Household 1 has a household income of $75,000. The house consists of a husband and a wife, two children, and a live-in mother-in-law.
Household 2 also has a household income of $75,000. The house consists of a single female with no dependents.
Example 2: Other monetary factors such as debt play a huge role
Household 1 has a household income of $75,000 and consists of a young married couple. They have no debt.
Household 2 also has a household income of $75,000 and consists of a married couple. One attended a private college and now has student loans plus other debts (car, credit card, etc.) totaling $150,000.
Example 3: Cost of living is a major factor
Household 1 has a household income of $75,000 and consists of a retired couple. They live in Kalamazoo, Michigan.
Household 2 also has a household income of $75,000 and consists of a retired couple. They live in Chicago, IL.
According to CNN’s cost of living calculator, the equivalent of $75,000 in Kalamazoo is $98,539 in Chicago.
In each of the examples above, do we really expect household 1 and household 2 to have the same amount of discretionary income available? It just isn’t the reality. There are additional factors that, coupled with household income, can give us a clearer picture. But then, of course, there are behavioral factors to consider. My point is, household income is a start, but the only way to get a true picture of discretionary income is in-depth market research.