what is per capita income 
per capita income is a measure of the amount of money earned per person in a nation or geographic region per capita income is used to determine the average per person income for an area and to evaluate the standard of living and quality of life of the population per capita income for a nation is calculated by dividing the country s national income by its population investopedia madelyn goodnightunderstanding per capita incomeper capita income counts every individual adult and child even newborn babies as a member of the population this stands in contrast to other common measurements of an area s prosperity such as household income which counts all people residing under one roof as a household and family income which counts as a family those related by birth marriage or adoption who live under the same roof the united states census bureau takes a survey of income per capita every year the bureau takes the total income for the previous year for everyone 15 years old and older and calculates the mean average of the data 1the census includes earned income including wages salaries and self employment income interest income dividends including income from estates and trusts and government transfers social security public assistance welfare survivor and disability benefits not included are employer paid healthcare money borrowed insurance payments gifts food stamps public housing capital gains medical care or tax refunds 2according to census bureau data the national per capita income for 2022 latest information was 41 804 the per capita income was lower than the median household income of 74 580 34each metric has its advantages per capita income is helpful when analyzing a large number of people such as the population of the united states which stands at more than 330 million 5median household income is helpful when determining the level of income disparity and poverty in a certain area as the median number eliminates outlier income figures that could skew the data set uses of per capita incomeperhaps the most common use of income per capita is to ascertain an area s wealth or lack of wealth for example income per capita is one metric the u s bureau of economic analysis bea uses to rank the wealthiest counties in the united states the other being median household income 6per capita income is also useful in assessing an area s affordability it can be used in conjunction with data on real estate prices for instance to help determine if average homes are out of reach for the average family notoriously expensive areas such as manhattan and san francisco maintain extremely high ratios of average home price to income per capita 7businesses can also use per capita income when considering opening a store in a town or region if a town s population has a high per capita income the company might have a better chance at generating revenue from selling their goods since the people would have more spending money versus a town with a low per capita income limitations of per capita incomealthough per capita income is a popular metric it does have some limitations since per capita income uses the overall income of a population and divides it by the total number of people it doesn t always provide an accurate representation of the standard of living in other words the data can be skewed whereby it doesn t account for income inequality for example let s say a town has a total population of 50 people who are earning 500 000 per year and 1 000 people earning 25 000 per year we calculate the per capita income as 500 000 50 25 000 1 000 to arrive at 50 000 000 in total income when we divide 50 000 000 1 050 total population the per capita income is 47 619 for the town however the per capita income doesn t give us a true picture of the living conditions for all of those living in the town imagine if federal aid or public assistance was provided to towns based on per capita income the town in our example might not receive the necessary aid such as housing and food assistance if the income threshold for aid was 47 000 or less per capita income doesn t reflect inflation in an economy which is the rate at which prices rise over time for example if the per capita income for a nation rose from 50 000 per year to 55 000 the next year it would register as a 10 increase in annual income for the population however if inflation for the same period was 4 income would only be up by 6 in real terms inflation erodes the purchasing power of the consumer and limits any increases in income as a result per capita income can overstate income for a population the cost of living differences can be inaccurate when making international comparisons since exchange rates are not included in the calculation critics of per capita income suggest that adjusting for purchasing power parity ppp is more accurate whereby ppp helps to nullify the exchange rate difference between countries 8also other economies use bartering and other non monetary activities which are not considered in calculating per capita income per capita income doesn t include an individual s savings or wealth for example a wealthy person might have a low annual income from not working but might draw from savings to maintain a high quality standard of living the per capita metric would reflect the wealthy person as a low income earner per capita includes children from the total population who don t earn any income countries with many children would have a skewed result since they would have more people dividing up the income versus countries with fewer children the welfare of the people isn t necessarily captured with per capita income for example the quality of work conditions the number of hours worked education level and health benefits are not included in per capita income calculations as a result the overall welfare of the community may not be accurately reflected it s important to consider that per capita income is only one metric and should be used in conjunction with other income measurements such as the median income income by region and the percentage of residents living in poverty 