Economic Well-Being

Perhaps the most popular measures of economic well-being are household income and household net worth. Income measures the amount of money that enters a household over a period of time (usually measured over a one-year period), and net worth measures the amount of resources a household owns at a particular point in time, less any debts the household owes. These measures are useful for several reasons. First, they are both relative and absolute measures. You can make comparisons between households (although you still have to account for family size and structure) and the absolute values—they are usually measured in currency— also have meaning. Also, these measures reflect access to goods and services (dollars), regardless of whether or not funds are actually spent.

Although economists are usually careful not to attempt to make comparisons of economic satisfaction or "utility" between households, there is an implicit assumption, when using monetary measures of well-being, that we are doing exactly that. Before we go on, we must spend some time considering the relative pros and cons of different measures. It should be noted that for this entry, we will not consider measures that attempt to determine whether individuals have enough to meet the most basic necessities.