Our paper aims to estimate a household consumption function in the presence of liquidity constraints as well as household characteristics. Empirical findings from a Korean cross-sectional data (National Survey of Household Income and Expenditure) reveal that several family characteristics, such as household size, number of working members, children in school, and educational level and age of the household head, turn out to be critical determinants of household consumption. Especially, the influence of household size on consumption decision is shown to be highly significant, not only indirectly through its impact on household income, but also directly by affecting the household's preference for consumption itself. While, the other family characteristics primarily influences household income. Our paper distinguishes itself from existing literature in that it greatly improves the explanatory power of the estimated household consumption function by measuring the degree of the liquidity constraint rather than simply identifying its presence. Based on the assumption that the present value of human capital is a function of household characteristics, the degree of the liquidity constraint is represented by the underestimated portion of the human capital. Such a method of implementing the liquidity constraint is useful in treating various types of assets according to their liquidity. Finally, our estimated household consumption function is applied to decompose cross-sectional variances of consumption inequality. The analysis confirms that the overall alleviation in liquidity constraints in Korea after the 1997 currency crisis reduced consumption inequality despite the worsening of income inequality and changes in the demographic composition of family characteristics during the same period.