What Is Personal Income?
Personal income refers to all income collectively received by all individuals or households in a country. Personal income includes compensation from a number of sources, including salaries, wages, and bonuses received from employment or self-employment, dividends and distributions received from investments, rental receipts from real estate investments, and profit sharing from businesses.
- Personal income is the amount of money collectively received by the inhabitants of a country.
- Sources of personal income include money earned from employment, dividends and distributions paid by investments, rents derived from property ownership, and profit sharing from businesses.
- Personal income is generally subject to taxation.
Understanding Personal Income
The term “personal income” is sometimes used to refer to the total compensation received by an individual, but this is more aptly referred to as “individual income.” In most jurisdictions personal income, also called “gross income,” is subject to taxation above a certain base amount.
Personal income has a large effect on consumer consumption. As consumer spending drives much of the economy, national statistical organizations, economists, and analysts track personal income on a quarterly or annual basis. In the United States, the Bureau of Economic Analysis (BEA) tracks personal income statistics each month and compares them to numbers from the previous month. The agency also breaks out the numbers into categories, such as personal income earned through employment wages, rental income, farming, and sole proprietorship. This allows the agency to make analyses about how earning trends are changing.
Personal income tends to rise during periods of economic expansion and stagnate or decline slightly during recessionary times. Rapid economic growth since the 1980s in economies such as China, India, and Brazil has spurred substantial increases in personal incomes for millions of their citizens.
Contributions to government social insurance programs, such as Social Security, are not included when calculating disposable personal income.
Personal Income vs. Disposable Personal Income
Disposable personal income (DPI) refers to the amount of money a population has left after taxes have been paid. It differs from personal income in that it takes taxes into account. However, it’s important to note that contributions to government social insurance are not taken into account when calculating personal income. As a result, only income taxes are removed from the personal income figure when calculating disposable personal income.
Personal Income vs. Personal Consumption Expenditures
Personal income often is compared to personal consumption expenditures (PCE). PCE measures the changes in the price of consumer goods and services. By taking these changes into account, analysts can ascertain how changes in personal income affect spending. To illustrate, if personal income increases significantly one month, and PCE also increases, consumers collectively may have more cash in their pockets but may have to spend more money on basic goods and services.