Friday Quickie: Average household income by age

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I meant to share this a while ago, but hey, better late than never.

In finance, it’s common to hear statistics like “average household income is X” or “the average salary in America is Y” being used. But the average is often not very useful, and here’s (one of) the reasons why:

Average income by age

Photo Credit: NPR

This is a bar graph of average household incomes in America, grouped by age. Someone starting out their career might be discouraged to see/hear on CNN that average household incomes are $50,000 a year… until you look at a graph like this. When incomes are broken down by age group, the real pattern emerges: Different age groups at different points in their careers earn different amounts of money, on average. And when you collapse all this information into a single average value, higher earning cohorts, such as the 45-54 age group, pull the average higher.

I like seeing statistics broken down like this because it’s easy to see how the overall average doesn’t always reveal underlying patterns. Sometimes, more detail is required because a single number doesn’t accurately represent the data.

Of course, earning more is better and I’m not saying that anyone should be happy or not happy making X amount of money. But it’s important to not be overly sensitive to statistics that blithely declare that an average is XYZ without digging a little deeper.

This blog was inspired by this article on NPR.

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  1. TB at BLueCollarWorkman says:

    THis does help actually. Those stats they give are so big and covering all these different groups! I think that even by age, we have to be careful, because where you live is important too! $5 goes a lot further in BuFu, Nebraska than NYC, and so we can assuem people get paid differently as well.

    • CF says:

      That’s true – perhaps even more informative would be to group the groups above into different regions in the country according to cost-of-living.

  2. This is slightly depressing for me because I used to fit right in with the averages for my age, but with freelancing I don’t even fit in the 25-34 year olds anymore. 🙁 Trying to change that of course!

  3. Liquid says:

    I like these studies a lot. It shows how well we’re all doing relative to our economic surroundings. If those numbers in the graph represents after tax income then I am below average in my age group of 25-34 year olds 🙁 Interesting how more than a third of the incomes earned by households over 65 years old come from active work income. Don’t know if that’s due to those people getting bored and like to keep themselves busy, or if they’re forced to work and delay retirement because otherwise they’re afraid to run out of savings.

    • CF says:

      It’s pre-tax income 😉

      It would be interesting to see some of the context, I agree. Perhaps some of it is due to small business owners or people who still do consulting work in their field.

  4. Love this! It really does help. And not just with understanding, but with optimism. 🙂

  5. What happens if you have two income earners in different age groups?

    • CF says:

      I hadn’t considered that actually. I’d imagine they must do some statistical wizardry to account for those cases. Maybe taking the average of the two ages?

  6. This really needs to be broken down as individual, family, by age, by general region. Otherwise i think there is too much noise in these figures. Regionally, a 100k in NYC is about the same as 60k in NH. Further, there is ambiguity in if the early 20s figures are individual or combined, and if individual and if you are single, it is difficult to compare across age groups if this is combined income, for obvious reasons. Regardless, without revealing my exact income, this put a huge smile ony face. compare this to a chart breaking out average net worth by age group to really find out how lifestyle inflation is manifest in the US.

    • CF says:

      Yes, you and TB up above have a good point. You do need to consider the cost of living in a given area. I’d like to see the same type of graph per state or province, or even a micro-analysis of neighbourhoods in a given state.

  7. Ah – I wish this was for Canada! Good to know that we are relatively very well off.

    • Oopsy, hit reply too quickly.
      A paper could be written on this, but I would really like to know what percentage of income earners in Canada clear six figures as a primary (or a secondary but still main income) earner. As in, only 11.65% of income tax filers make over 75K, but there will be a large number of teenagers making a small amount that is purely spending money, skewing the results. Some parents have a part time job that makes 15K to keep them occupied, whereas for other people that is food on the table money. The same goes for teenagers. I feel that the 11% number under represents higher income earners, but dropping the lower end of the spectrum will not provide a representative statistic either.

      Ahem. Seriously, can someone please write a paper on this for me? I’m not going to do it any time soon.

      • CF says:

        Ahhh… another good point I hadn’t thought of. I wonder then – when I was younger and living with my parents, did my income count towards our “household income” even though I was whittling it away on clothes and CDs?

        I will keep an eye out in case I see any papers or information about this 😀

  8. eemusings says:

    I’ll admit, I think my perceptions are a bit skewed by some of the super high earners in the PF blogosphere! My income is pretty bang on average (in fact, quite good considering my industry and age).

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