Real Per-Capita Disposable Personal Income

Definition


What is Real Per-Capita Disposable Personal Income?

Let's look at each part of real per-capita disposable income so that we can understand what it means and why it is important. Personal income in the U.S. consists of all income that is received by U.S. residents in a given year, originating from all sources. Thus personal income is the sum of wage and salary disbursements, other labor income, proprietor's income (rental income), dividend and interest income, and transfer payments to individuals (welfare, unemployment insurance, etc). Disposable personal income is the portion of personal income that is left after personal taxes are subtracted, and thus is the amount of personal income available to people for consumption spending and saving. Per capita disposable personal income is found by dividing a country's total disposable personal income by its population. Finally, real per-capita disposable personal income is found by adjusting per-capita disposable personal income for inflation.

Changes in real per-capita disposable personal income (hereafter referred to as "real per-capita income") over time indicates trend in a country's material standard of living. Real per-capita income will usually rise when economic growth rates exceed population growth rates. Thus countries with rapid population growth rates must have an even more rapid rate of growth in real income in order to maintain material living standards. Real per-capita income tends to follow the business cycle, rising in the peaks and falling in the troughs. The greater percentage of real per-capita income in most countries is used for consumption spending rather than saving, with the percentage varying by culture and other factors. All else equal, a rise in consumer confidence will tend to increase the percentage of real per-capita income that is allocated to consumption, and decrease the percentage allocated to saving.

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