Why Median Income vs. Average Income Matters for Better Decisions
Planning Data
Kristen Carney
One of the most common questions I get is: "Should I use median income or average income data?" Nine times out of ten, my answer is median income, because it gives a more accurate reflection of typical wealth in an area.
Where to Find the Data 📊
You can access the most current (2023) US Census median and average income data for:
- Zip codes on our free site: incomebyzipcode.com, and
- Richest 20 cities and counties in each state on our state-demographics.com websites
First, let's quickly break down the difference 🤔
You aren't alone if you haven’t thought about median versus average since your last standardized test. Here's a refresher:
- An average (aka mean) is the sum of a set of numbers divided by the count in the set.
- A median is the middle number when the set is sorted from smallest to largest.
A Simple Example 📈
Let's say you have this set of household incomes:
- Household 1: $30,000
- Household 2: $50,000
- Household 3: $1,000,000
The average income here is $360,000, heavily skewed by the $1,000,000 outlier income. Likewise, an income of just $500 would skew the average way down. However the median income stays steady at $50,000, unaffected by high or low outlier incomes.
Why Business Owners Should Use Median Income 💡
Median income offers a more realistic view of "typical" income in an area, especially in markets with income disparity. That’s why it’s my go-to recommendation for most business plans and market analyses.
When Average Income is Useful 🏡
If your audience is higher-income households (think luxury goods or high-end services), high average incomes can help show a high concentration of wealth in an area.
Fun Fact: Why Does Median Income Cap at $250,000? 🎩
The Census Bureau uses $250,000+ as a placeholder to protect privacy.
The Census Bureau’s American Community Survey uses $250,000+ as a “jam value” (a placeholder for very high incomes) to protect privacy and simplify reporting. That means if a household makes more than $250,000, the Census Bureau just reports it at $250,000. So if you are looking for detailed data on ultra-high-income households, you'll need to use a different dataset. And I'm happy to provide suggestions if you want them.
Have Questions? 🤝
We're happy to help with your median income vs. average income data needs! Email us at datanerds@cubitplanning.com or fill out the Custom Data Request form to get in touch. We're here to help!