What is Buying Power Index?
Buying Power Index (BPI) is a measure of a household’s purchasing power. It is calculated by dividing the median household income of a particular area by the area’s cost of living. This index measures how much money households have left after spending on necessities such as groceries, housing, and transportation. It is a useful tool for both individuals and businesses to measure their standard of living and to determine the best areas to live or invest in.
How is Buying Power Index calculated?
The Buying Power Index is calculated by dividing the median household income of a particular area by the area’s cost of living. For example, if the median household income for a city is $50,000 and the cost of living for that city is $30,000, then the Buying Power Index for that city would be 166.67. This means that households in that city have 66.67% more money left after spending on necessities than they would have if they were living in an area with the same cost of living but a lower median household income.
Examples of Buying Power Index
The following are examples of areas with high and low Buying Power Index:
- High Buying Power Index:
- San Francisco, CA – 254.84
- Manhattan, NY – 217.69
- Los Angeles, CA – 168.64
- Low Buying Power Index:
- Detroit, MI – 81.79
- Cleveland, OH – 82.41
- Memphis, TN – 83.70
These examples show that households in San Francisco and Manhattan have much more purchasing power than households in Detroit, Cleveland, and Memphis.
Benefits of Buying Power Index
The Buying Power Index provides individuals and businesses with valuable information when it comes to making decisions about where to live or invest. For individuals, it can help them determine if they can afford to live in a particular area and how much they will have left after spending on necessities. For businesses, it can help them determine the best places to invest and the areas with the most potential customers.
Conclusion
The Buying Power Index is a valuable tool for both individuals and businesses to measure the standard of living in an area and to make informed decisions about where to live or invest. It is calculated by dividing the median household income of a particular area by the area’s cost of living and provides valuable insight into a household’s purchasing power.