“The most dangerous phrase in our language is ‘we’ve always done it this way.'” Rear Admiral Grace Hopper’s warning applies perfectly to how we measure household income in market research.
Household income (HHI) is used almost everywhere in consumer segmentation research, as well as screening and profiling. In fact, can you remember an online survey that didn’t ask about it? “Which of the following best describes…”, followed by gross annual income ranges, is the standard approach.
At Quirk’s Chicago in 2024, Quest Mindshare and Fordis Consulting presented new research that challenges that approach. Our conclusion: the way the industry asks about HHI today is outdated, inaccurate, and misleading.
How Researchers Use HHI Today
Before the session, we polled researchers on LinkedIn about how they use household income data:
- Segmentation: 41%
- Profiling and qualifying: 32%
- Assumed purchasing power: 23%
Segmentation came out on top, which shows how central HHI has become to consumer segmentation research. In other words, most researchers rely on HHI to tell them who consumers are and to estimate consumer purchasing power. But the data behind that assumption has changed dramatically.
“Households” Aren’t What They Used to Be
However, the traditional picture of a household no longer reflects reality. Several major shifts are underway:
- More adult children living at home. A 2022 survey found 40% of parents had an adult child living with them.
- More single-parent households. They grew from 8% of U.S. households in 2000 to 12% in 2023. That’s 8.5 million out of 105 million households in 2000, compared with 15.5 million out of 129 million in 2022.
- More unrelated adults living together, and a steady decline in married-couple households.
When the household itself has changed, a single “household income” number tells you much less than it used to, especially in consumer segmentation research.
Income Has Stalled, While Costs Have Soared
Income tells a similar story. According to Pew Research Center’s 2018 analysis, today’s average hourly wage has about the same purchasing power it did in 1978. And since 2000, usual weekly wages have risen only 3% in real terms.
Meanwhile, inflation has steadily eroded buying power. $100 in 2000 buys only about $50 worth of goods today. Put another way, $100 that once bought four to five bags of groceries now buys two, maybe three.
For most consumers, then, income has stayed flat while consumer purchasing power has been cut roughly in half.
Where You Live Changes Everything
Location makes the picture even more complicated. Using MIT’s Living Wage Calculator, we compared two cities for a household with two working adults and two children:
- San Francisco: requires about $169,582 a year before taxes
- San Antonio: requires about $100,374 a year before taxes
Moreover, the differences vary widely by category. In San Francisco, child care costs 238% of San Antonio’s cost, housing 211%, and food 158%. Yet medical costs are nearly equal, and transportation actually costs more in San Antonio.
So the same household income can mean very different consumer purchasing power depending on where someone lives, and on what they’re buying.
What Consumers Told Us
Facts and trends only tell part of the story. We wanted to know how consumers actually feel about their income, spending, and future. So we asked them.
We surveyed 1,000 U.S. consumers across three generations:
- Gen Z adults (ages 21–27): 200 respondents
- Millennials (ages 28–43): 400 respondents
- Gen X (ages 44–59): 400 respondents
We balanced each group to U.S. Census regions and to income ranges based on median HHI for their generation. In addition, we asked whether respondents lived in a downtown, urban, suburban, or rural area. Most importantly, we asked how many adults in the household work and pay bills, and about any other sources of income.
The Households We Found
- 28% of respondents lived alone, and 72% lived with others.
- Among those living with others, 69% lived with a partner or spouse, 54% had no children in the household, and 27% lived with three or more adults.
Income, Redefined
Among respondents living with others:
- 47% had only one full-time earner
- 29% had two full-time earners
- 7% had three or more
- 30% had part-time workers in the household
The biggest finding: 55% of all households had additional income, such as savings, disability payments, or family support. Unfortunately, a standard gross income question misses all of it.
Where the Money Goes
We asked what respondents would do if their income changed by 10%.
If income grew 10%, the top categories to benefit were:
- Food shopping (43%)
- Debt payments (30%)
- Housing (25%)
- Savings and investments (24%)
- Travel and vacations (21%)
- Dining out, food delivery, and subscriptions (21%)
If income fell 10%, the first things cut were:
- Dining out, food delivery, and subscriptions (54%)
- Entertainment, like cable and streaming (34%)
- Food shopping (22%)
- Clothes shopping (21%)
- Bars and socializing (18%)
- Alcohol, cannabis, and tobacco (16%)
- Cultural events (16%)
Respondents’ own words showed the pressure behind these numbers. One told us, “I’ve done all I know to do. That won’t make my pay match inflation.” Others said they wanted to “get ahead of my bills,” “do anything I can to save a dollar,” and “feel less guilty about my spending.”
A Better Way to Measure Household Income in Market Research
What the industry has been doing isn’t wrong, but it’s no longer enough. After all, households are different, income is flat for most people, inflation has reshaped priorities, and geography can change the whole picture.
That’s why we recommend a measure of HHI that’s relative, not absolute. Start with gross annual income, then adjust it with a few key factors:
- Geographic compensation. Adjust income for cost of living in your target metros and product category, using a tool like MIT’s Living Wage Calculator. If you make only one change, make this one.
- Household members and earners. Ask how many people live in the household, how many contribute income, and how much. More households have multiple earners today.
- Dependents. Ask who each earner is paying for in the household.
Rethinking Household Income in Market Research
No single solution fits every study. But a different approach is clearly needed. Critically evaluate your research, decide what will work best, and add more factors to your current HHI estimate. The result is a far more accurate picture of who consumers are and their true consumer purchasing power.
