What does age have to do with it?

The U.S. Census Bureau has a wealth of information on income, poverty and other measures of economic wellbeing in the U.S.

It is actually quite hard to measure income. In an earlier post, I looked at income tax data from the IRS. The data provided by the Census Bureau are based on surveys. Each year, the Current Population Survey collects data on family, household and personal economic indicators for the previous year. Tabulating the results of the survey is a major undertaking. The most recent data available cover 2006 income.

Just to give you an idea of what is involved in figuring out income, here is a small excerpt from the CPS definitions page:

Income measurement:
For each person in the sample 15 years old and over, the CPS asks questions on the amount of money income received in the preceding calendar year from each of the following sources:

  1. Earnings
  2. Unemployment compensation
  3. Workers’ compensation
  4. Social security
  5. Supplemental security income
  6. Public assistance
  7. Veterans’ payments
  8. Survivor benefits
  9. Disability benefits
  10. Pension or retirement income
  11. Interest
  12. Dividends
  13. Rents, royalties, and estates and trusts
  14. Educational assistance
  15. Alimony
  16. Child support
  17. Financial assistance from outside of the household
  18. Other income
  19. ...

Of course, income according to this definition does not match income for reported for tax purposes, but the CPS data do give us a good idea of pre-tax incomes in the U.S.

The Census Bureau does provide an extensive collection of publications and tabulated data but sometimes a picture really is worth a thousand words.

Below is a graph of family income by the age of the reference person in the family. Each bar corresponds to the age group given on the horizontal axis and the segments of the bar correspond to the share of families in the listed income groups. For simplicity, I reduced the income groups provided in the original table.

[ U.S. Family Income Distribution by Age ]

The image above links to a larger version.

The size of the yellow segment in each bar corresponds to the share of families with incomes greater than $100K. Clearly, there is a pattern here: The proportion of families with annual incomes more than $100K increases initially with age and then starts decreasing once we hit the 55 to 59 age group.

Let us turn this graph on its head, and look at the distribution of age of reference person by family income category:

[ U.S. Age Distribution by Family Income ]

Again, the image above links to a larger version of the graph.

For clarity, I chose the same color for various age groups. Red segments correspond to families where the reference person is between 15 to 24 years old, green segments correspond to families where the reference person is between 25 to 54 years old and blue segments correspond to families where the reference person is 55 or older.

Again, the pattern is staring right at us: There are a lot more people under 35 and over 55 in the lower family income groups than there in the higher income groups. Whereas only 33% of respondents in the less than $25,000 family income category are in the 35 to 54 age group, almost 60% of those in the more than $100,000 family income group. Quite simply, the higher the family income category, the higher the proportion of people between 35 - 54 years old in that group.

There is no mystery. Younger people generally have less experience and fewer income producing assets (other than human capital such as an amazing voice or athletic skills). Surely, the “less than $25K/year” category includes young single parents but also grad students attending college, people just starting out etc. Generally, incomes increase as people get older until they reach retirement age. The families where the reference person is 45 to 54 years old and the families with incomes greater than $50,000 are the ones helping the 30 and younger crowd with college or grad school expenses, helping them move into their first homes etc while at the same time paying for today’s social security and medicare for the older crowd.