(A bit of a math clarifier on Average Income vs. Median)
"Average Household Income rose by 2%" does not mean what many think it means and should not be reported in the manner that it is. Some might think this is silly, but I have found that many people take news like "Average Household Income rose by 2%" as good news for everybody. Unfortunately, with upper incomes flying into the stratosphere, the average is meaningless.
Media often report, "The Average Household Income rose by 2% again this year". I wanted to illustrate that the Average Household Income is MEANINGLESS (for those who might think of "Average" as a number out of 100, like in grade school).
Imagine a small Country with 100 families and 1 business.
(ok, a verrrrry small Country)
99 families work for The Grommet Production Factory and each have an annual income of
$10,000.00.
99 x $10,000 =
$990,000 total income for Worker families
1 family contains the CEO/President of The Factory.
His annual income (including bonuses) is
$1,010,00.00.
$990,000 + $1,010,000 =
$2,000,000 total income for the 100 families (entire Country)
$2,000,000 divided by 100 families =
$20,000/yr. Average Household Income
Now imagine the next year (in order to remain competitive) the CEO/President must restructure with a 10% sacrifice by employees,
lowering wages to $9,000/yr. Of course a successful restructuring means a healthy bonus for the CEO/President for his difficult decisions.
99 x
$9,000 = $891,000 Worker families
1 x
$2,011,000 = $2,011,000 CEO/ President (nice raise:)
$891,000 + $2,011,000 =
$3,000,000 total income for the 100 families (entire Country)
$3,000,000 divided by 100 families =
$30,000/yr. Average Household Income
Therefore,
Average Household Income goes up by a whopping 50%.;)
Wow, must be a Happy Island.
NOT
There is no ceiling when calculating Average Household Income (it's not a test out of 100) and with upper income earners getting ever larger and larger Salaries and Bonuses, the "Average" goes up which has no bearing on the majority of families' income. The median income is the middle income ie: if we rated the families in this small country from 1 to 100 based on income, family 51's income would go down from $10k/yr. to $9k/yr.
So, the next time you hear a reporter reporting on the Average Household Income, ask yourself "average, out of what"?
Well, that's all I wanted to mention folks.
(thanks Danjuma)