What is your household income? Are you comfortable? Do you worry a lot about what’s going to happen to the economy in the future? Do you think our financial institutions will be around to help those left behind by globalization? The answers to these questions and others like them are important to getting prepared for the future. In today’s political climate, much of the political rhetoric focuses on the concerns faced by the middle class.
Household incomes have grown much more slowly than per capita income during the last two economic recessions. In fact, from 1950 until the late 1970s, the household income per capita income was increasing at about a quarter of a percent a year. In recent years, however, the incomes per capita income has been declining. In other words, there is a growing squeeze between what the pay goes down and what the family income can handle.
So, how do we best prepare for the future and address these issues? One of the first steps is to understand what the household income means. It is a measure of the value of all household goods and services that are used every year. All the tangible assets and material possessions that we own are included; including money and securities such as bonds and stocks. This is called the “median household income” because it represents the income level that an average family makes, and this figure is updated every year.
There are many ways to calculate the household income level: one way is to divide the annual income by the number of adults in the family. For instance, if there are four adults in the household, then the income is divided by four. Another way to calculate is to take the annual income of each member of the household and divide it by the number of employed persons in the household. And, the third way to calculate the household income is to multiply the annual amount by the number of people in the household. These are just a few of the numerous ways to calculate household income. Knowing how to do so will help you plan and secure the future of your family.
Because the household income is essentially the measure of the value of all household goods and services, most families today focus their financial planning on meeting this figure. They carefully track their earnings to make sure they meet the minimum threshold required by the government. If they fall below the median family income, then a number of problems can arise.
One major concern is that when a household income falls below the median household income, some households end up being “underwater.” Underwatering occurs when a bank loan is used to finance the purchases of goods and services of an individual or family, but the funds are not sufficient to pay for these items. This leaves the customer with a low-value product or service, which he or she will have to either sell or replace at a reduced cost. Banks must follow strict guidelines when it comes to underwatering. There must be an explanation as to why the accounts receivable and invoice balance are higher than the current market value.
Another concern for many households with incomes that fall below the median household income level is whether or not they are properly tax qualified. While it is true that a substantial portion of U.S. households fall into the high- and low-income categories, there are also households that fall into both groups. Middle-income households typically earn between the two-thirds of the median and the one-thirds of the median. When those in the middle-income group earn less than half the median income, they fall into the high-income category and therefore must pay taxes on income that exceeds the median.
As a result, some households that would fall into the high-income category actually receive more in tax refunds than they pay in taxes due to their higher household income. In the last decade, the top one-percent of earners has received nearly one-point raises to about forty-five times the average household income. This raises the bar on how much an average family must earn in order to be tax eligible. Although the rich are getting richer, many people continue to live below the means necessary to make ends meet. If you fall into one of these categories, it’s important to understand that there is assistance available.