From year to year, the economic well–being of many Americans changes considerably, even though summary measures, such as median income, do not vary much in real terms from one year to the next.

One measure of economic well–being is the income–to–poverty ratio—called the income ratio here—that is, the ratio of an individual’s annual family income to the family’s poverty threshold.¹ Between 1993 and 1994, roughly three–fourths of the population saw their economic well–being fluctuate by 5 percent or more. As the data in Figure 1 show, this degree of fluctuation has been fairly constant over the past 10 years. Conversely, from year to year, fewer than a quarter of all Americans had stable income ratios (that is, ratios that changed less than 5 percent from year to year). Over the course of a lifetime, the average American can expect to experience a number of such shifts in economic well–being.

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¹ The income ratio standardizes economic well-being through the use of poverty thresholds. A poverty threshold is an amount of annual family income below which a family is deemed to be in poverty. Poverty thresholds vary by family size and composition and are updated each year to adjust for inflation. For instance, in 1994, the poverty threshold for a three-person family was $11,817. Hence, for a family of three with an income of $20,000 that year, the income-to-poverty ratio, or income ratio, would be 1.69 (i.e., $20,000/$11,817). Poverty thresholds are also calculated for unrelated individuals, such as one-person households.