What Does Your Income Actually Tell You?

Economic Participation, Part 1: Income, Wealth, and the Limits of One Number

Companion episode: Income Is Not Wealth | Economic Participation, Part 1 on Spotify.

Related reading: Understanding the Interconnected Roles of Workers and Consumers.

How much money do you make? We use that question for almost everything. When we apply for a job, we want to know what it pays. When we apply for an apartment or apply for credit, somebody wants to know our income. And sometimes, whether we admit it or not, we use income as a shortcut for deciding how well somebody is doing. A person makes thirty thousand dollars, seventy thousand dollars, or a hundred and fifty thousand dollars, and almost immediately we begin forming a picture of where that person stands economically.

The more I have been thinking about economics, the more I think that number tells us less than we sometimes ask it to tell us. Income matters. I work because I need income. I have bills and responsibilities. I have raised three children, and I have been working for about twenty-six years across construction, roofing, manufacturing, retail, sales, management, quality, training, and other jobs. I am not an economist, and I am not giving financial advice. What I am doing is taking things I have lived through and observed as a worker, a parent, and someone who studies organizations and psychology, and asking whether the evidence supports what I think I am seeing. If it does not, then I have to change how I am thinking about it. That is part of the point.

Income Tells Me Something. It Does Not Tell Me Everything.

Income is money flowing into a household over a period of time. Someone works and gets paid. Maybe two people in the household work. Maybe there is retirement income, business income, investment income, or another source. Whatever the source, income tells me something important about what is coming in. The Federal Reserve’s Survey of Consumer Finances treats income alongside a household’s balance sheet, net worth, credit use, assets, and liabilities because those measures answer different questions about a family’s finances.

That difference becomes easier to see if I imagine two households making the same seventy-five thousand dollars a year. One owns a home and has been paying on it for fifteen years. It has equity in the house, retirement savings, perhaps some investments, mostly paid-off vehicles, and some cash reserves. The other household earns the same income but rents, carries a car payment, has student loans and credit-card debt, and has almost nothing saved. Their incomes are the same. Their balance sheets are not. If I use income alone to decide who is economically stronger, I am ignoring what each household owns and what each household owes.

The example works in reverse too. Someone who is retired may have a modest current income while owning a paid-off house, retirement assets, investments, and very little debt. Another person may earn a much larger salary and own almost nothing after liabilities are considered. So which person is wealthier? Income can help answer where money is coming from. It cannot answer that question by itself.

Where I Stand Is Not the Same as What I Can Do

This is where the language of lower, middle, and upper income becomes more interesting to me. Pew Research Center’s 2026 historical comparison places 28 percent of adults in the lower-income tier, 56 percent in the middle-income tier, and 17 percent in the upper-income tier in 1990. The published whole-number percentages total 101 percent because of rounding. By 2024, Pew reports 30 percent lower income, 52 percent middle income, and 18 percent upper income. The distribution changed. The middle-income share became smaller, the lower-income share became somewhat larger, and the upper-income share changed slightly. But the categories did not simply disappear.

That makes me ask a different question. If I am middle income today, does being middle income give me the same economic capacity that it gave somebody decades ago? One question asks where I stand relative to other people. The other asks what that position actually allows me to do. Those are not the same measurement. I can make more dollars than someone made years ago and still have to ask what housing costs, what transportation costs, what insurance costs, what food and healthcare cost, and what it costs just to participate in the economy where I live.

The Bureau of Labor Statistics makes the same basic distinction when it separates nominal income from real income and purchasing power. A higher nominal income means more dollars are coming in. Real income asks what those dollars can buy after price changes are considered. That does not mean a larger paycheck is meaningless. More income can expand choices, improve the ability to save, strengthen borrowing capacity, and make emergencies easier to absorb. But a larger number does not automatically establish a stronger position if the relationships around that number changed faster.

The Ratio Changes the Question

That is where I keep coming back to the ratio. The number tells me something. The relationship tells me something else. I also want to be careful because I do not want this inquiry to become an argument against wealth. I do not think being wealthy makes somebody immoral. I do not think owning a successful business, investing, or wanting a house to increase in value is wrong. I would like to create wealth. I would like my children to have more options than I had. I would like the work I do today to create something that still has value tomorrow. That is part of why I need the words to remain distinct.

Income is not the same measurement as wealth, and income is not the same measurement as purchasing power. Assets are not the same thing as cash income. A person can receive a larger paycheck without building many assets. Another person can watch an asset appreciate without receiving another dollar in wages. A retired household can have lower current income and still possess considerable accumulated wealth. A working household can pay every bill this month and still own very little at the end of the year. Those conditions can all exist at the same time because the economy has more than one heartbeat.

Before I argue about what government should do, what corporations should do, what wages should be, or how much somebody should be taxed, I think I need to understand the words I am using. Income. Purchasing power. Assets. Wealth. If I mix those together, I can create an argument that sounds right while measuring the wrong thing. That is not a small problem, because the policy answer can only be as good as the question we actually asked.

Closing Reflection

Income is only the beginning. If I tell you that household income is higher today than it was in 1995, that statement can be completely true and still leave something important unanswered: what can that income buy? That is where I want to go next. I want to compare changes in median household income with changes in housing prices in different places, not because two counties can represent an entire country, but because the relationship itself can be tested. If income went up, did its ability to reach housing go up with it, or did the ratio change? Maybe the number tells me where I stand. The ratio may tell me what that position actually allows me to do.

Orlando J. Alvarez

References

Board of Governors of the Federal Reserve System. (2023). Changes in U.S. family finances from 2019 to 2022: Evidence from the Survey of Consumer Finances. Federal Reserve.

Board of Governors of the Federal Reserve System. (2026, October 9). Changes in U.S. family finances from 2022 to 2025. Federal Reserve.

Pew Research Center. (2026, March 25). Income class. Pew Research Center.

U.S. Bureau of Labor Statistics. (2026, September 23). Income and the Consumer Price Index (CPI). Bureau of Labor Statistics.