The rising cost of living and falling house prices have had an “unprecedented” effect on the net savings and wealth of the most vulnerable households, says Statistics Canada, which released the data on Tuesday morning. Canadian Household Economic Accounts.
Among other things, we learn that income inequality increased in the first quarter of 2023 compared to last year. Younger age groups are particularly affected by the fall in house prices and the size of the debt-to-income ratio, estimates the federal agency, which forecasts that inflation and interest rates interest should continue to put pressure on the ability of vulnerable households to “make ends meet”.
Statistics Canada reports that “the gap between rich and poor is widening at the fastest rate on record” and that “relatively few households” own most of the wealth in the country. Indeed, “the gap in net worth between the highest and lowest wealth increased by 1.1 percentage points in the first quarter of 2023 compared to the same quarter a year earlier”, according to the agency. . This is the fastest increase on record since 2010, when this data is calculated.
Result: the quintile of households with the highest wealth possessed 67.8% of the wealth in the first quarter, while the 40% of households with the lowest wealth, generally the youngest, accounted for only 2.7% of the wealth. net worth in the country.
Statistics Canada reports that “households with the lowest wealth have been more affected by recent economic pressures” than households with the highest wealth, showing respective declines in net worth of 13.8% and 3.8% over a year.
Uneven increase in income
The share of disposable income of the wealthiest households increased, while that of the bottom incomes fell, widening the gap by 0.2 percentage points, to 44.7%, compared to the first quarter of 2022. However, income remains below its pre-pandemic level.
Statistics Canada reveals that average household wages increased by 4% in the first quarter of 2023. For the bottom income quintile, the increase in average wages was only 1%. That said, lower-income households benefited from a significant increase in transfer payments, notably from federal and provincial retirement benefits (48.5%), compared to an 18.8% drop for all households .
The federal agency indicates that “inflationary pressures and the increase in interest rates have had a negative impact on the disposable income of households earning the lowest incomes”. She attributes these pressures to the increase in the Bank of Canada’s key rate and to the decline in net investment income, mainly attributable to the increase in interest charges on credit cards and mortgage loans.
Average disposable income fell by 0.2% for all households in the first quarter compared to a year earlier. However, households with the highest incomes saw their disposable income increase by 1.9% over the same period, thanks in part to an increase in investment income.
For all income brackets except the highest, Statistics Canada calculates that “net savings in the first quarter declined below levels recorded three years ago at the start of the pandemic, as Increases in the cost of living have exceeded income gains for most households”. Wealthier households are therefore the only ones who have been able to increase their level of savings despite the rise in the cost of living.
Young people particularly affected
It was the decline in real estate values that accounted for almost all of the decline in household net worth in the first quarter. The average price of a home in the country was $686,000, down 13.7% year-on-year.
The average net worth of households under 35 fell 8.7% year-on-year. This decline amounts to 1.8% among 55 to 64 year olds. Statistics Canada explains that the uneven decline in household net worth by age is due to the fact that real estate accounts for a greater share of the value of a young household, while older ones have a portfolio of assets more diverse.
The magnitude of the debt-to-income ratio, especially among the youngest, worries Statistics Canada. Although employment earnings have increased among young workers, “persistently high levels of interest rates and inflation have continued to limit their ability to make ends meet,” the agency explains. Among those aged 35 to 44, the debt-to-income ratio reached 275.8%, up 16.6 percentage points from the first quarter of 2022.
Statistics Canada predicts that high interest rates and inflation will continue to weigh on household wallets, “particularly among vulnerable groups” such as the youngest age groups and those with the highest incomes. weaker.